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Question:

Acme Corp. purchased a new stamping machine for $100,000, paid SI0,000 for shipping, and paid $5,000 to have it installed in their plant Based on an estimated salvage value of $25,000 and an economic life of six years, the difference between straight-line depreciation and double-declining balance depreciation in the second year of the asset’s life is closest to:

A $10,556.
Explaination

Straight line depreciation is (100,000 + 10,000 + 5,000 — 25,000) / 6 = 15,000 each year. Double-declining balance depreciation in the second year is: 115,000 (2/3)(1/3) = 25,556. The difference is $10,556. Remember chat salvage value is not part of the declining balance calculation.