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Cullumber Chemicals Company acquires a delivery truck at a cost of $38,400 on January 1, 2022. The truck is expected to have a salvage value of $2,400 at the end of its 4-year useful life. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.

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Answer:

Results are below.

Explanation:

Giving the following information:

Purchase price= $38,400

Salvage value= $2,400

Useful life= 4 years

To calculate the depreciation expense under the double-declining balance, we need to use the following formula:

Annual depreciation= 2*[(book value)/estimated life (years)]

Year 1:

Annual depreciation= 2*[(38,400 - 2,400) / 4]

Annual depreciation= $18,000

Year 2:

Annual depreciation= 2*[(36,000 - 18,000) / 4]

Annual depreciation= $9,000

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