Fabian Woodworks

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020.
-Refer to Fabian Woodworks. If the company uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2020?

Question

Fabian Woodworks
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This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020.
-Refer to Fabian Woodworks. If the company uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2020?

Quizplus · Accepted Answer

To use the double-declining-balance depreciation method, first we need to calculate the straight-line depreciation rate:

Straight-line depreciation rate = (Cost - Residual value) / Useful life
= ($12,000 - $2,000) / 5 years 
= $2,000 per year

Double-declining-balance depreciation rate = 2 x Straight-line depreciation rate 
= 2 x $2,000 
= $4,000 per year

Using this method, the depreciation expense for 2020 can be calculated as follows:
Depreciation expense for 2019 = $4,000 x 27,000 hours / 100,000 hours = $1,080 
Book value at the end of 2019 = $12,000 - $1,080 = $10,920 
Depreciation expense for 2020 = $4,000 x $10,920 / $100,000 = $436.80 per hour x 26,000 hours = $11,356.80 
Total depreciation expense for 2020 = $1,080 + $11,356.80 = $12,436.80

Therefore, the correct answer is option B ($2,880).

Fabian Woodworks ​

Fabian Woodworks