Lakeside Electric purchased a truck for $38,600 to transport equipment to various job sites. For this purpose, storage bins were welded to the truck bed at a cost of $1,700. Doug Lombardi, controller of Lakeside, estimates the useful life of the truck to be 5 years and the residual value to be $1,000. Using the double-declining balance method, the depreciation expense on the truck for its second year of use is

Answer (D) is correct. Under double-declining balance method, the full cost of the asset, or $40,300 ($38,600 + $1,700), is depreciated, but not below salvage value. Because the straight-line rate for a 5-year asset is 20% (100% ÷ 5), the double-declining balance rate is 40% (20% × 2). The first year’s depreciation is $16,120 ($40,300 × 40%), leaving a carrying amount for the second year of $24,180 ($40,300 – $16,120). The second year’s depreciation is thus $9,672 ($24,180 × 40%).