Question

A four-door sedan costs$35000 with a residual value of $2000. Its service life is five years. Using the declining balance method at twice the straight-line rate, the book value at the end of year 2 is?

Answer 1

Answer:

At the end of the 2 year, the book value of the truck is $12,600

Step-by-step explanation:

we know that

Double declining balance method is a form of an accelerated depreciation method in which the asset value is depreciated at twice the rate it is done in the straight-line method.

Step 1

Determine the straight-line depreciation rate

Divide the total cost by the number of years in the asset's useful life.

$\frac{\ 35,000}{5}=\ 7,000$

Step 2

Then, multiply that number by 2 and that is your Double-Declining Depreciation Rate

$7,000(2)=\ 14,000$ -----> is the depreciation for Year 1

Step 3

At the end of the first year, the book value of the truck is

$\ 35,000-\ 14,000=\ 21,000$

Step 4

For Year 2, we will apply the same formula to the book value of the truck by the end of Year 1

$\frac{\ 21,000}{5}=\ 4,200$

$4,200(2)=\ 8,400$ -----> is the depreciation for Year 2

therefore

At the end of the 2 year, the book value of the truck is

$\ 21,000-\ 8,400=\ 12,600$