1. Think Break #14
Machine costs $7000 with a useful life of 3 years and salvage value of $1000 1) What is the double declining balance depreciation for the 1st year? 2) What is machine’s ending basis in 1st year? 3) What is the double declining balance depreciation for the 2nd year? 4) What is machine’s ending basis in 2nd year?

2. Think Break #14 Answer
Double declining balance depreciation rate RDB = 2 x (1/3) = 2/3 (= 66.67%) 1) Year 1 Depreciation = $7,000 x 2/3 = $4,667 2) Ending basis in 1st year = $7,000 – $4,667 = $2,333 3) Year 2 Depreciation = $2,333 x 2/3 = $1,555 4) Ending basis in 2nd year = $ 2,333 – $1,555 = $788

3. Think Break #14 Answer
Cannot take $1,555 depreciation in year 2 since implies ending basis < salvage value Set year 2 depreciation so asset fully depreciated during year 2 3) Year 2 Depreciation $2,333 – $1,333 = $1,000 Depreciation = $1,333 4) Ending basis in 2nd year = $ 2,333 – $1,333 = $1,000

4. Think Break #14 Answer Year Beginning Basis Depreciation Ending Basis
7,000
4,667
2,333 2
1,555
1,333
778
1,000 3