Can someone break down how to solve the following problem step by step? Especial
ID: 2409905 • Letter: C
Question
Can someone break down how to solve the following problem step by step? Especially the Double-declining balance depreciation part please.
Acme Corp. purchased a new stamping machine for $100,000, paid $10,000 for shipping, and paid $5,000 to have it installed in their plant. Based on an estimated salvage value of $25,000 and an economic life of six years, the difference between straight-line depreciation and double-declining balance depreciation in the second year of the asset's life is closest to:
A. $7,220.
B. $10,556.
C. $16,666.
Explanation / Answer
B. $10,556.
Straight line depreciation = (100,000 + 10,000 + 5,000 - 25,000) / 6 = 15,000 each year
Double-declining balance depreciation in the second year = 115,000 (2/3)(1/3) = 25,556
The difference is $10,556.