Question

On January 1, Year 1, Friedman Company purchased a truck that cost $33,000. The truck had an expected useful life of 8 years and an $7,000 salvage value. The book value of the truck at the end of Year 1, assuming that Friedman uses the double-declining-balance method, is: _________. (Do not round intermediate calculations.)

Answer 1

The book value of the truck at the end of Year 1 is $ 29,750

Step-by-step explanation:

Given,

Orginal cost = $33,000

Useful life = 8 years

Salvage value = $7,000

Double - declining - balance method : The double declining balance method (DDM) is somewhat same as Straight Line method (SLM) in which the same depreciation is charged over the useful life. But in this method, the DDM is the 200% of SLM method. It multiplies by 2 while calculating the depreciation.

The original cost is the purchase price , whereas the salvage value is the terminal value.

The formula for calculating depreciation in DDM is as follows:

= \dfrac{original\ cost - salvage\ value }{Number\ of\ years}\times2

=
`(($33,000 - $7,000 ))/(8)*2`

= $3,250

The formula to compute book value of the truck at the end of Year 1

= Original cost - Depreciation

= $33000 - $3,250

=$ 29,750

Thus, The book value of the truck at the end of Year 1 is $ 29,750