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Costco purchased a truck from a company going out of business for $40,000. An appraisal indicated...

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Accounting

Costco purchased a truck from a company going out of businessfor $40,000. An appraisal indicated the fair value of the truck tobe $42,000. Costco estimated the truck would provide futurebenefits for 3 years and would bring an $8,800 residual value atthe end of the 3-year period.

How much is the depreciation expense for the second year if thecompany uses the double- declining-balance method?

Answer & Explanation Solved by verified expert
3.7 Ratings (360 Votes)

Depreciation expense for the second year = $ 8,889

Explanation

Double Declining Balance Depreciation
Beginning book value x Double the straight- = Depreciation expense
line rate
First year's depreciation                  40,000.00 x 2/3 =                  26,667.00
Second year's depreciation                  13,333.00 x 2/3 =                    8,889.00
Explanation:
Double-declining-balance rate = (100% / 3 years) × 2 = 2/3 per year
Book value at beginning of second year = $40,000 – $26,667 = $13,333

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