Question

Deuce Company purchased a truck for $80,000 on January 1, 2018. The asset has an expected salvage value of $8,000 at the end of its five-year useful life.

Calculate depreciation expense in 2019 (the second year) under:

1. Straight-line depreciation? (2 points)
2. Double-declining balance depreciation? (3 points)
3. Sum-of-years digits depreciation? (3 points)

Answer 1

Cost of Truck = $80,000

Salvage value = $8,000

Useful life = 5 years

Straight line depreciation.

Depreciation expense per year = [cost - salvage value] / useful life

Depreciation expense per year = [$80,000 - $8,000] / 5 = $14,400

So, Depreciation expense in 2019 is $14,400.

.

Double declining balance depreciation.

Double declining depreciation rate = (1 / useful life) * 2 = (1/ 5) * 2 = 40%

Depreciation expense 2nd year = $80,000 * (1 - 0.40) * 40% = $19,200

Depreciation expense 2nd year = $19,200.

.

Sum of years digits depreciation.

Depreciation expense 2nd year = [cost - salvage value] * remaining useful life of the asset / sum of the year digits

Depreciation expense 2nd year = [$80,000 - $8,000] * 4 / (1 + 2 + 3 + 4 + 5) = $72,000 * 4/15

Depreciation expense 2nd year = $19,200