Final answer:
The depreciation expense for Year 1 for a delivery truck using the double-declining balance method is $1,600, considering the mid-year purchase and prorating the annual depreciation rate.
Therefore, the correct answer is: option b). $1,600
Step-by-step explanation:
The cost of the truck is $8,000 with a salvage value of $500 and an estimated useful life of 5 years.
However, since the truck was purchased on July 1 of Year 1, only half a year of depreciation should be accounted for in the first year.
Annual depreciation using this method is calculated as follows: double the straight-line depreciation rate (which is 1 / 5, or 20%, for a 5-year asset), applied to the book value of the asset at the beginning of the year.
Therefore, 40% is the double-declining rate. For half a year, only 20% (half of the annual rate) is applied.
To find the depreciation expense for Year 1:
- Calculate the full annual depreciation: $8,000 (cost) x 40% = $3,200.
- Prorate this for half a year (since the truck was purchased mid-year): $3,200 / 2 = $1,600.
Therefore, the correct answer is b). $1,600, representing the depreciation expense for Year 1 using the double-declining balance method.