On January 1, 2013, Dana Corporation purchased equipment for $450,000. Installation costs were an additional $50,000. The equipment's useful life was estimated at 5 years, with a salvage value of $25,000. The company planned to depreciate the equipment over five years using the straight-line method for reporting purposes and the double declining balance method for tax purposes.
Dana Corporation's accumulated depreciation at December 31, 2014 for reporting purposes and for tax purposes, respectively, will be:




$190,000 and $304,000


$180,000 and $320,000


$190,000 and $320,000


$200,000 and $304,000

To calculate Straight-line Depreciation you need to know the formula, which is:Depreciation per year = (Cost - Salvage value) / Number of years useful life.To figure out your depreciation for your books you take the cost of the equipment take your purchase price plus your installation costs. Now subtract the salvage value to get your depreciable base (numerator in the above formula) and divide it by the number of years useful life to get your depreciation per year. Since you are trying to figure out the depreciation for 2 years you need to take your depreciation per year times 2 to get your answer.

Double-declining method is a little more complicated. First start with your costs, which is your purchase price plus your installation costs to get your total equipment cost. Now you have to figure out the rate for the depreciation, so take 1 divided by the useful life of 5, which is .2 or 20% times 2 (double the rate) equals 40%. Now you can calculate the accumulated depreciation:

For year 1 depreciation take your total equipment cost times 40% to get your depreciation for year one. Now take your total equipment cost minus your depreciation for year one to get your remaining book value of the equipment.

For year 2 depreciation take your remaining book value of the equipment times 40% to get your depreciation for year 2.Now for your accumulated depreciation simply add your depreciation amounts for year 1 and 2 together to get your answer.

Note: In the Double-declining method to not go below the salvage value. In other words when your depreciation amount takes your remaining book value below the salvage value you only use the amount of depreciation that gets your remaining book value down to the salvage value.