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Taylor Corporation purchased a new asset for $80,000. The asset had an estimated lifeof 5 years and an estimated salvage value of $20,000. What is the depreciation expense in the second year if the company uses the double-declining balance method?
Correct Answer: B
The double-declining rate is 40% [(100%/5) x 2]. The beginning book value of $80,000 is multiplied by the 40% rate to get $32,000 depreciation expense for the first year. The second year will be .4 x ($80,000 - $32,000) = $19,200. The accelerated method will cause more depreciation in the early years and a lower value for the assets.