Question

Bubba's Trucking Company purchased a new truck on January 1, 2017 for $270,000. Its useful life is expected to be 9 years and its salvage value is estimated at $25,000. What is the depreciation expense for 2018 using the declining-balance method at double the straight-line rate (i.e., the double-declining balance method)?

Answer 1

The depreciation expense for Bubba's Trucking Company for the year 2018 using the double-declining balance method is $47,890.24, which is calculated by applying the rate of 22.22% to the adjusted book value of the truck at the beginning of the year after accounting for the first year's depreciation.

Step-by-step explanation:

To calculate the depreciation expense for 2018 using the double-declining balance method, we first need to determine the straight-line depreciation rate, which is based on the useful life of the truck. Since the useful life of the truck is 9 years, the straight-line depreciation rate would be 1/9, or about 11.11%. To apply the double-declining balance method, we double this rate, getting 22.22%. We then apply this rate to the book value of the truck at the beginning of 2018. In the first year (2017), the depreciation would have been 22.22% of the initial cost minus the salvage value: (270,000 - 25,000) × 22.22%, which is $54,444. After the first year, the book value of the truck would be 270,000 - 54,444 = $215,556. In 2018, the depreciation expense will again be 22.22% of the new book value: $215,556 × 22.22% = $47,890.24. This is the depreciation expense for Bubba's Trucking Company for the year 2018 using the double-declining balance method.