Question

22. Mike’s Tires uses the double-declining-balance method to calculate depreciation for its truck. The company purchased the truck on September 2, 2015, for $15,200 and a $250 delivery fee. The company expects the truck to last 20 years and have a $1,700 salvage value at that date. Calculate the following: a. Double-declining balance rate

b. Depreciation expense for 2015

c. Depreciation expense for 2016

Answer 1

a)	Double declining balance rate = (100%/20)*2 =	10.00%
b)	Using mid month convention, the rate for 2015
	sould be 10*3.5/12 =	2.92%
	Depreciation for 2015 = 15450*2.92% =	$              451
	Using full month convention, the rate for 2015
	sould be 10*4/12 =	3.33%
	Depreciation for 2015 = 15450*3.33% =	$              514
	Using mid quarter convention, the rate for 2015
	sould be 10*1.5/4=	3.75%
	Depreciation for 2015 = 15450*3.75% =	$              579
	Using mid month convention, the rate for 2015
	sould be 10*2/12 =	5.00%
	Depreciation for 2015 = 15450*5.00% =	$              773
c)	Depreciation for 2016 = (15450-451)*10% =	$          1,500
	or
	Depreciation for 2016 = (15450-514)*10% =	$          1,494
	or
	Depreciation for 2016 = (15450-579)*10% =	$          1,487
	or
	Depreciation for 2016 = (15450-773)*10% =	$          1,468
	NOTE:
	The first year depreciation rate would depend on the convention
	used, that is full month, half month, mid quarter or mid year
	convention. Rates and depreciation have been worked out
	accordingly.
	Depreciation rate would be 10% from year 2, but depreciation
	amount for 2nd year would depend on the depreciation amount
	of year 1.
	Last year's depreciation rate would be 5%-the depreciation rate
	adopted for the first year.