Question

Dow Corp. bought a truck for $80,000 on January 1, 2018. They installed a rear hydraulic lift for $10,000 and paid sales tax of $4,000. In addition, Dow Corp. paid $3,000 for a one-year insurance policy. They estimate the useful life of the truck to be 10 years and its residual value $12,000. If Dow uses the double declining method of depreciation, what is the depreciation expense for 2019?

Answer 1

Answer:

Depreciation for 2019 = $12,894

Explanation:

Total cost of truck = Purchase price  $80,000 + Hydraulic Lift $10,000 = $90,000

Note: Sales Tax will be refunded, thus will not form part of cost.

Insurance expense paid is for 1 year only.

Now provided salvage value = $12,000

Therefore depreciation amount = $90,000 - $12,000 = $78,000 in 10 years

As per declining method depreciation rate = (Straight line Depreciation/Cost) X 2

Straight lie depreciation = $78,000/10 = $7,800

Double declining method =$\frac{7,800}{90,000} \times 2 = 8.67 \times 2 = 17.33%$

Depreciation for 2018 = $90,000 X 17.33% = $15,597

Depreciation for 2019 = $90,000 - $15,597 = $74,403 X 17.33% = $12,894