Refer to Exhibit 11-1.How much depreciation should Hills record on the asset in 2011?

A) $16, 000
B) $20, 000
C) $32, 000
D) $40, 000

Question

Refer to Exhibit 11-1.How much depreciation should Hills record on the asset in 2011?A) $16, 000B) $20, 000C) $32, 000D) $40, 000

Khadija Pervaiz FAST NU LHR · Accepted Answer

Final Answer : C, Explanation :  The double-declining-balance method uses a depreciation rate of twice the straight-line rate, which in this case is 20% (200% / 10 years). Therefore, the depreciation expense for the asset in 2011 would be calculated as follows:Book value at beginning of year 2 = $200,000 - $40,000 (residual value) - $40,000 (depreciation expense in year 1) = $120,000Depreciation expense in year 2 = $120,000 x 20% (double the straight-line rate) = $24,000However, the double-declining-balance method does not take into account residual value, so the depreciation expense is limited to the book value at the end of its useful life. Therefore, the depreciation expense in 2011 would be the lesser of $24,000 or ($200,000 - $40,000) / 10 years = $16,000. Thus, the answer is C.

Refer to Exhibit 11-1.How much depreciation should Hills record on the asset in 2011?

A) $16, 000
B) $20, 000
C) $32, 000
D) $40, 000

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