(TCO 6) BagODonuts Company bought a used delivery truck on January 1, 2010, for

Question

                 (TCO 6) BagODonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was expected to remain in service 4 years (30,000 miles). BagODonuts’ accountant estimated that the truck’s residual value would be $2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500 miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year.

1. Calculate depreciation expense for the truck for each year (2010-2013) using the:
a. Straight-line method.
b. Double-declining balance method.
c. Units of Production method.
(For units-of-production and double-declining balance, round to the nearest two decimals after each step of the calculation.)
2. Which method best tracks the wear and tear on the van?
3. Which method would BagODonuts prefer to use for income tax purposes? Explain in detail why BagODonuts prefers this method. (Points : 25)            

Explanation / Answer

1 a Depreciation Schedule

Cost: $19,200.00, Salvage: $2,400.00, Life: 4 years
Convention: Full-Month, First Year: 12 months

1 b Cost: $19,200.00, Salvage: $2,400.00, Life: 4 years, Factor: 2
Convention: Full-Month, First Year: 12 months

1 c Depriciation expense

Year 1 4480

Year 2 4760

Year 3 3080

Year 4 4480

2. Straight line method best tracks the wear and tear on the van.

BagODonuts prefers Straight line method to use for income tax purposes because of excess deduction every year.

Depreciation Schedule Year
Book Value
Year Start Depreciation
Expense Accumulated
Depreciation Book Value
Year End 2010 $19,200 $4,200.00 $4,200 $15,000 2011 $15,000 $4,200.00 $8,400 $10,800 2012 $10,800 $4,200.00 $12,600 $6,600 2013 $6,600 $4,200.00 $16,800 $2,400

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.