Question

Schneider Trucking Inc. purchased a new truck on January 1 of the current year for $180,000. Its expected useful life is 5 years and its salvage value is estimated at $25,000. What is the depreciation expense for the current year using the declining-balance method at a double the straight-line rate (i.e., the double-declining balance method)?

Answer 1

The depreciation expense for Schneider Trucking Inc.'s new truck in the current year using the double-declining balance method is $72,000. This figure is obtained by applying a 40% depreciation rate, which is double the straight-line rate, to the initial cost of the truck.

Step-by-step explanation:

The subject of the question deals with the calculation of depreciation expense using the double-declining balance method (DDB) for a truck purchased by Schneider Trucking Inc. The truck has a cost of $180,000, a salvage value of $25,000, and a useful life of 5 years. To calculate the depreciation for the first year using DDB, we double the straight-line rate of 20% (100% / 5 years), resulting in a rate of 40%. Then, we apply this rate to the book value of the truck at the beginning of the year, which is its initial cost of $180,000.

To calculate the first year's depreciation expense:

• Depreciation rate = (2 / Useful life in years) = 2*20% = 40%
• Depreciation expense = Depreciation rate * Book value at the beginning of the year
• Depreciation expense for the current year = 40% * $180,000 = $72,000

The final answer is that the depreciation expense for the current year is $72,000.