A) Chippawa Industries acquired a delivery truck on January 4, 2012. The total c

Question

A) Chippawa Industries acquired a delivery truck on January 4, 2012. The total cost of the truck was $150,000. Chippawa estimated that the truck would be used for 8 years before being sold for an estimated $23,500. Chippawa uses the double-declining balance method of depreciation. The total depreciation expense for the year ended December 31, 2012 was

1-$37,500
2-$30,375
3-$18,125
4-$15,188

B) Wind Streamers, Inc. acquired a piece of machinery on January 3, 2012. The total cost of the machinery was $68,400. Wind Streamers estimated that the machinery would be used to produce 100,000 units of product before being sold for an estimated $11,400. Wind Streamers uses the units-of-production method of depreciation. Assuming the machine produced 22,200 units during the year ended December 31, 2012, the 2012 depreciation expense was:

1) $18,500

2) $14,800
3) $12,654
4) $10,50

Explanation / Answer

A) The correct option is 1. $ 37,500

Double declining rate = 100 / 8 x 2 = 25%

Therefore 2012 depreciation expense is $ 150,000 x 25% or $ 37,500

B) The correct option is 3. $ 12,654

Depreciable amount = Cost - Salvage value = $ 68,400 - $ 11,400 = $ 57,000

Rate of depreciation per unit produced = $ 57,000 / 100,000 = $ 0.57

Depreciation expense for 2012 = 22,200 units x $ 0.57 = $ 12,654

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