Question

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, the amount of depreciation expense recognized on the Year 3 income statement is

a- $4,000.

b- $6,000.

c- $12,000.

d- $24,000.

Answer 1

Answer:

a- $4,000.

Explanation:

Double Declining Method

The Accelerated depreciation is charged in this method. The depreciation charged in this method is double of the charged in straight-line depreciation method.  

Wecan calculate the depreciation as follow

First, calculate the Double declining rate as follow

Depreciation rate = 2 x (1/useful life) x100 = 2 x (1/4 years) x100 = 50%

Now, Charge this rate to the book value of the asset.

Year 1

Depreciation  = Book value x Depreciation rate = $48,000 x 50% = $24,000

Year 2

Book value at start of Year = $48,000 - $24,000 = $24,000

Depreciation  = Book value x Depreciation rate = $24,000 x 50% = $12,000

Year 3

Book value at start of Year = $24,000 - $12,000 = $12,000

The Depreciation can be charged upto the salvage value.

Depreciation  = Book value - Salvage Value = $24,000 - 8,000 = $4,000