Question

Corales Company acquires a delivery truck at a cost of $58,000. The truck is expected to have a salvage value of $6,000 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.

Answer 1

Answer:

The annual depreciation for the first and second years under the declining-balance method is $29,000 and $14,500 respectively

Explanation:

In the declining balance method, the depreciation rate is double of the straight line method.

So, the depreciation rate = (100 ÷ useful life) × double

                                          = (100 ÷ 5) × 2

                                          = 50%

The annual depreciation for the first year =  Acquire price × depreciation rate

= $58,000 × 50%

= $29,000

And, the  annual depreciation for the second year =  Year 1 annual depreciation × depreciation rate

= $29,000 × 50%

= $14,500