Question

Adams Trucking Inc. purchased a new semi-truck on January 1, 2017 for $250,000. Its useful life is expected to be 5 years and its salvage value is estimated at $20,000. 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 2018 depreciation expense for Adams Trucking Inc's semi-truck using the double-declining balance method is $60,000, which is 40% of the book value at the beginning of that year ($150,000).

Step-by-step explanation:

The depreciation expense for Adams Trucking Inc.'s semi-truck in 2018 using the double-declining balance method can be calculated by first determining the straight-line depreciation rate, then doubling that rate for the double-declining balance calculation. For a $250,000 semi-truck with a useful life of 5 years and a salvage value of $20,000, the straight-line depreciation rate is 20% ($250,000 - $20,000) / 5 = $46,000 year). Therefore, the double-declining rate is 40% (2 x 20%). In the first year (2017), the depreciation would be $100,000 (40% of $250,000). By the end of 2017, the book value would be $150,000 ($250,000 - $100,000).

For 2018, apply the 40% rate to the book value at the beginning of the year, which results in a depreciation expense of $60,000 (40% of $150,000). It's important to keep in mind that the calculation each year is based on the net book value at the beginning of the year, after subtracting accumulated depreciation from the original cost.