Question

Barefoot Industrial acquired a new delivery truck at the beginning of its current fiscal year. The truck cost $31,000 and has an estimated useful life of four years and an estimated salvage value of $4,300. Required: a-1. Calculate depreciation expense for each year of the truck's life using Straight-line depreciation. Depreciation expense $ 6,675 per year a-2. Calculate depreciation expense for each year of the truck's life using Double-declining-balance depreciation. Year Depreciation Expense 15,500 2 $ 7,750 3 Java A ne instal

Answer 1

Barefoot industrial:

b. Truck's net book value at the end of its third year

Depreciation method	Calculation	Net book value*
Straight line method**	= 31,000-(3×6,675) = 31,000-20,025	$ 10,975
Double declining balance method***	= 31,000-(15,500+7,750+3,450) = 31,000-26,700	$ 4,300

*Net book value = Truck cost - 3 years depreciation

** Depreciation under straight line method is constant in every year.

Depreciation = (cost - salvage value)/useful life

= (31,000-4,300)/4 = $ 6,675

*** Depreciation rate under double declining balance method is 50% (2×(6,675/(31,000-4,300)))

3rd year depreciation = book value@ 2nd year × 50%

= {31,000-(15,500+7,750)} × 50%= $ 7,750 × 50% = $ 3,875

Book value @ 3rd year is $ 3,875 (7,750-3,875) which is lower than salvage value hence the depreciation to be recorded in 3rd year will be $ 3,450 (7,750-4,300).