Warren company plans to depreciate a new building using the double declining-balance depreciation method. the building cost $800,000.
the estimated residual value of the building is $50,000 and it has an expected useful life of 25 years.

assuming the first year's depreciation expense was a full year and was recorded properly, what would be the amount of depreciation expense for the second year?
a. $30,720
b. $32,000
c. $58,880
d. $64,000

Option (C) is correct.

Explanation:

Here, we are using the double declining-balance depreciation method:

Given that,

Building cost = $800,000

Estimated residual value of the building = $50,000

Expected useful life = 25 years

Annual depreciation rate as per straight line method:

= 100 ÷ 25 years

= 4% per year

Hence, depreciation as per double decline balance method:

= 2 × Annual depreciation rate as per straight line method × Beginning value of each period

In year 1,

Ending value = Beginning value - Depreciation

                      = $800,000 - (2 × 4% × $800,000)

                      = $800,000 - $64,000

                      = $736,000

In year 2,

Depreciation = 2 × 4% × $736,000

                      = $58,880

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