A company purchased a computer system at a cost of $40,000. The estimated useful life is 10 years, and the estimated residual value is $5,000. Assuming the company uses the double-declining-balance method, what is the depreciation expense for the second year?

The depreciation expense for the second year is $5,600

Explanation:

Under the straight-line method, useful life is 10 years, so the asset's annual depreciation will be 10% of the Depreciable cost.

Depreciable cost = Total asset cost - salvage value = $40,000-$5,000 = $35,000

Under the double-declining-balance method the 10% straight line rate is doubled to 20% - multiplied times the Depreciable cost's book value at the beginning of the year.

In the first year, depreciation expense = 20% x $35,000 = $7,000

At the beginning of the second year, the Depreciable cost's book value is $35,000-$7,000 = $28,000

Depreciation expense in second year = 20% x $28,000 = $5,600