Question

From the following facts, prepare a depreciation schedule using the declining-balance method (twice the straight-line rate): (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required.) Volvo truck $ 25,000 Residual value $ 5,000 Estimated life 5 years

Cost of truck Accumulated Book Value Depreciation Accumulated Book value
Depreciation at at beginning expense Depreciation value end
beginning of year of year for year at end of year of year
End of year 1
End of year 2
End of year 3
End of year 4

Answer 1

To create a declining-balance depreciation schedule, calculate an annual 40% depreciation on the book value of the truck, deducted until reaching the $5,000 residual value, adjusting as necessary in the final year.

Step-by-step explanation:

To prepare a depreciation schedule for a Volvo truck using the declining-balance method at twice the straight-line rate, we need to first calculate the straight-line depreciation rate. Since the estimated life of the truck is 5 years, the straight-line rate is 1/5 or 20% of its depreciable base, which is the cost of the truck minus the residual value ($25,000 - $5,000 = $20,000). Consequently, the rate for the declining-balance method would be 40% (twice the straight-line rate).

For year 1, the depreciation expense is 40% of $20,000, which is $8,000. The accumulated depreciation at the end of year 1 is also $8,000, and the book value at the end of year 1 is the cost of the truck minus the accumulated depreciation ($25,000 - $8,000 = $17,000).

Each subsequent year, the depreciation expense is calculated by applying the 40% rate to the book value at the beginning of that year, continuing until we reach the final residual value of $5,000. Note that in the final year, the depreciation might need to be adjusted to avoid depreciating below the residual value.