Tory Enterprises pays $247,400 for equipment that will last five years and have a $44,500 salvage value. By using the equipment in its operations for five years, the company expects to earn $89,400 annually, after deducting all expenses except depreciation.

Tory Enterprises pays $247,400 for equipment that will last five years and have a $44,500 salvage value. By using the equipment in its operations for five years, the company expects to earn $89,400 annually, after deducting all expenses except depreciation.
 Calculate annual depreciation expenses using double-declining-balance method.
 

Prepare a table showing income before depreciation, depreciation expense, and net (pretax) income for each year and for the total five-year period, assuming double-declining-balance depreciation
 

Explanation

Supporting calculations for depreciation expense
Depreciation rate (100% / 5 years) × 2 = 40%

	Beginning Book Value				Annual Depreciation (40% of Book Value)				Accumulated Depreciation at the End of the Year				Ending Book Value (Cost Less Accumulated Depreciation)
Year 1	$	247,400			$	98,960			$	98,960			$	148,440
Year 2		148,440				59,376				158,336				89,064
Year 3		89,064				35,626	**			193,962				53,438
Year 4		53,438				8,938	***			202,900				44,500
Year 5		44,500				0				202,900				44,500
Total					$	202,900

**rounded
***Must not use $21,375; instead take only enough depreciation in Year 4 to reduce book value to the $44,500 salvage value.

 

Thank you!