Question

On January 1, Marble Trucking purchased a used Kenworth truck at a cost of $44,000. Marble Trucking expects the truck to remain useful for four years (430,000 miles) and to have a residual value of $1,000. Marble Trucking expects the truck to be driven 86,000 miles the first year and 150,500 miles the second year. Compute second-year depreciation expense on the truck using the following methods a. Straight-line b. Units-of-production c. Double-declining-balance Start by selecting the formulas needed to compute annual depreciation under each of the three methods Straight-line depreciation Units-of-production depreciation Double-declining-balance depreciation - Book value x [(1 / Useful life in miles) x 2 Book value x [(1 Useful life in years) x 2] Book value x [(1/ Useful life in years) x 3] (Cost - Residual value)/Useful life in miles (Cost - Residual value)/ Useful life in miles] x Miles driven (Cost Residual value) / Useful life in years Cost/Useful life in miles Cost / Useful life in years

Answer 1

Straight Line Depreciation = (Cost – Residual Value) / Useful life in years

Units-of-production Depreciation = [(Cost – Residual Value) / Useful Life in Miles] / Mile Driven

Double-declining Balance Depreciation = Book Value x [(1/Useful Life in years)x2]

Second Year Depreciation Calculation

Straight Line Depreciation

= (Cost – Residual Value) / Useful life in years

= ($44,000 – 1,000) / 4 Years

= $10,750

Units-of-production Depreciation

= [(Cost – Residual Value) / Useful Life in Miles] / Mile Driven

= [($44,000 – 1,000)/430,000] x 150,500

= $15,050

Double-declining Balance Depreciation

= Book Value x [(1/Useful Life in years)x2]

First Year Depreciation = $44,000 x [(1/4Years) x 2] = $22,000

Second Year Depreciation = ($44,000 – 22,000) x [(1/4Years) x 2] = $11,000