Question

Clarence Trucking Inc. purchased a new truck on January 1 of the current year for $360,000. Its useful life is expected to be 8 years and its salvage value is estimated at $60,000. The company uses the double-declining balance method. What is the truck's book value at the end of December 31 of the second year?

Answer 1

The book value by December 31=$202,500

Step-by-step explanation:

The expression for the depreciable cost is as follows;

depreciable cost=Acquisition cost-salvage value

where;

acquisition cost=$360,000

residual value=$60,000

replacing;

depreciable cost=360,000-60,000=$300,000

depreciable cost=$300,000

The annual depreciation can be expressed as;

annual depreciation=depreciable cost/estimated life

where;

depreciable cost=$300,000

estimated life=8 years

replacing;

annual depreciation=300,000/8=37,500

annual depreciation=$37,500

depreciation rate=(annual depreciation/depreciable cost)×100

depreciation rate=(37,500/300,000)×100=12.5%

double declining depreciation rate=12.5%×2=25%

First year depreciation=360,000×25%=$90,000

Second year depreciation=(360,000-90,000)×25%=$67,500

Accumulated depreciation by December 31=90,000+67,500=$157,500

Book value=purchase cost-accumulated depreciation

Book value=360,000-157,500=$202,500

The book value by December 31=$202,500