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17 September, 22:41

On January 1, 2016, Pharoah Corporation acquired machinery at a cost of $1560000. Pharoah adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of 10 years, with no residual value. At the beginning of 2019, a decision was made to change to the double-declining balance method of depreciation for this machine. The amount that Pharoah should record as depreciation expense for 2019 is $156000. $218400. $312000. $468000.

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  1. 17 September, 22:46
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    Answer: The answer is B. $218,400

    Explanation: In this question, two methods of calculating depreciation were used.

    First was straight-line method.

    We calculate as follows:

    (Cost - salvage value) / useful life

    Cost = $1,560,000

    Salvage or residual value = 0

    Useful life = 10years.

    We have:

    (1,560,000 - 0) / 10

    = 1,560,000/10

    = $156,000

    This value is the expected depreciation amount every year.

    On the third year however, Pharoah Corporation switched to double declining method. On the third year, the value of the machinery will be:

    $1,560,000 - ($156,000 x 3)

    = $1,560,000 - $468,000

    = $1,092,000.

    Now to use double declining method to calculate the depreciation, we have:

    First divide 100% by useful life

    100%/10 = 10%

    Now multiply the percentage by 2

    10% x 2 = 20%

    Next step is to multiply this percentage by the remaining cost of the machinery on the third year, we have:

    $1,092,000 x 20%

    = $1,092,000 x 0.2

    = $218,400.

    Therefore, the answer is B.
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