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Warren Company plans to depreciate a new building using the double declining-balance depreciation method. The building cost $840,000. The estimated residual value of the building is $54,000 and it has an expected useful life of 25 years. Assuming the first year's depreciation expense was recorded properly, what would be the amount of depreciation expense for the second year

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jafransp

Answer:

$61,824

Explanation:

We know,

Depreciation expense rate under the double-declining method = (100% ÷ useful life) × 2

Depreciation expense rate = (100% ÷ 25) × 2 = 8%

The first year depreciation expense that was recorded properly = $840,000 ×  8% = $67,200.

In the double-declining method, we have to use the book value of a tangible assets to find the subsequent years' depreciation expense. The book value of a tangible assets can be calculated as follows: Book value = Purchase value - Accumulated depreciation.

Therefore, book value of the building after 1st year depreciation expense = $840,000 - $67,200 = $772,800.

Hence, the 2nd year depreciation expense = $772,800 ×  8% = $61,824.

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