On January 1, Delaney Company purchased a delivery truck for $46,000, having a s
ID: 2619838 • Letter: O
Question
On January 1, Delaney Company purchased a delivery truck for $46,000, having a salvage value of $4,000, and an estimated useful life of 4 years.
Calculate the depreciation expense in Year 2 assuming the use of the double-declining balance method.On January 1, DuPage Company purchased a delivery truck for $30,000. The company estimates the truck will be driven 80,000 miles over its eight-year useful life. The estimated salvage value is $6,000. The truck was driven 12,000 miles in the first year.
Which method results in the largest depreciation expense in year one?
On January 1, DuPage Company purchased a delivery truck for $30,000. The company estimates the truck will be driven 80,000 miles over its eight-year useful life. The estimated salvage value is $6,000. The truck was driven 12,000 miles in the first year.
Which method results in the largest depreciation expense in year one?
Select one:
A. Units-of-production
B. Double-declining balance
C. Straight-line
D. Sum-of-the-years' digits
Explanation / Answer
Delaney Company
Cost of truck = $46,000
Salvage value = $4,000
Useful life = 4 years
Annual depreciation as per straight line method = (Cost - Salvage value)/Useful life
= (46,000 - 4,000)/4
= $10,500
Depreciation rate as per straight line method = 10,500/42,000
= 25%
Hence, depreciation rate as per double declining method = 25% x 2
= 50%
Hence, depreciation expense in year 1 as per double declining method = 46,000 x 50%
= $23,000
Hence, book value of truck after year 1 = 46,000 - 23,000
= $23,000
Hence, depreciation expense in year 2 = 23,000 x 50%
= $11,500
Part (ii) DuPage Company
Cost of truck = $30,000
Useful life of truck = 8 yeras
Total miles run in 8 years = 80,000
Salvage value = $6,000
Miles run in year 1 = 12,000
A) Units of production method
Depreciation per mile = (Cost of truck - Scrap value)/Total miles expected
= (30,000 - 6,000)/80,000
= $0.30
Hence, depreciation expense in year 1 = 12,000 x 0.30
= $3,600
C) Straight line method
Annual depreciation as per straight line method = (Cost - Salvage value)/Useful life
= (30,000 - 6,000)/8
= $3,000
B) Double declining method
Annual depreciation as per straight line method = (Cost - Salvage value)/Useful life
= (30,000 - 6,000)/8
= $3,000
Depreciation rate as per straight line method = 3,000/24,000
= 12.50%
Hence, depreciation rate as per double declining method = 12.5% x 2
= 25%
Hence, depreciation expense in year 1 as per double declining method = 30,000 x 25%
= $7,500
D) Sum of the years' digits method
Depreciation expense = (Remaining useful life of truck/Sum of years' digits) x Depreciable cost
= (8/36) x 24,000
= $5,333.33
Hence, Double declining method results in largest depreciation expense.
Hence, correct option is (B)
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