Question

Rangers, Inc. purchased a truck for $78,000, with an estimated useful life of 5 years and a residual value of $8.000. The company uses the double-declining - balance method of depreciation, however, for year 3 they switch to the straight-line method. There is no change to the estimated useful life or residual value. What is the accumulated depreciation balance at the end of year 4? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) / O A. $63,306 OB. $67,891 OC. $56,613 OD. $56,000 /

Answer 1

Purchase price = $78,000

Useful life = 5 years

Residual value = $8,000

Depreciation Rate (Double declining balance method) = 2 * straight line depreciation rate

= 2 * (100 / 5)

= 2 * 20%

= 40%

Year 1 depreciation expense = Cost * 40%

= $78,000 * 40%

= $31,200

Year 2 depreciation expense = ($78,000 - $31,200) * 40%

= $18,720

Now, change to straight line depreciation method

Cost of truck at the beginning of the 3rd year

= Cost - Accumulated depreciation

= $78,000 - ($31,200 + $18,720)

= $78,000 - $49,920

= $28,080

Year 3 depreciation expense = (Cost - Salvage value) / 2

= ($28,080 - $8,000) / 3

= $6,693

Year 4 depreciation expense = $6,693

Accunulated depreciation expense at the end of 4th year

= ($31,200 + $18,720 + $6,693 + $6,693)

= $63,306