A truck costs $35,000 with a residual value of $2,000. Its service life is five years. Using the declining-balance method at twice the straight-line rate, the book value at the end of 2 years is?
12.600
To find the book value of the truck at the end of 2 years using the declining-balance method at twice the straight-line rate, we need to follow these steps:
Step 1: Calculate the straight-line depreciation rate.
The straight-line depreciation rate is determined by dividing the depreciable cost (cost - residual value) by the service life.
Depreciable cost = $35,000 - $2,000 = $33,000
Service life = 5 years
Straight-line depreciation rate = Depreciable cost / Service life = $33,000 / 5 years = $6,600 per year
Step 2: Determine the declining-balance depreciation rate.
The declining-balance depreciation rate is twice the straight-line rate, so we multiply the straight-line rate by 2.
Declining-balance rate = 2 * Straight-line rate = 2 * $6,600 per year = $13,200 per year
Step 3: Calculate the accumulated depreciation.
Accumulated depreciation is the depreciation incurred up to a certain point. For 2 years, the accumulated depreciation can be calculated by multiplying the depreciation rate by the number of years.
Accumulated depreciation = Depreciation rate * Number of years = $13,200 per year * 2 years = $26,400
Step 4: Find the book value at the end of 2 years.
The book value is the initial cost minus the accumulated depreciation.
Book value = Initial cost - Accumulated depreciation = $35,000 - $26,400 = $8,600
Therefore, the book value of the truck at the end of 2 years is $8,600.