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Gordon Chemicals Company acquires a delivery truck at a cost of $31,000 on January 1, 2017. The truck is expected to have a salvage value of $2,000 at the end of its 5-year useful life. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.

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TomShelby

Answer:

First Year Depreciation: 12,400

Second Year Depreciation: 7,440

Explanation:

[tex]straight-line depreciation \times 2 = \frac{1}{5} \times 2 = \frac{2}{5}[/tex]

[tex]\left[\begin{array}{ccccc}Year&Beginning\:Book&Dep \:Expense&Acc\:Dep&Ending\:Book\\0&-&-&-&31000\\1&31000&12400&12400&18600\\2&18600&7440&19840&11160\\3&11160&4464&24304&6696\\4&6696&2678.4&26982.4&4017.6\\5&4017.6&2017.6&29000&2000\end{array}\right][/tex]

To calculate each period depreciation we multiply the book value by the double-declining rate of 2/5

At the last year, you will depreciate until salvage value is reached.

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