Question

Depreciation Methods A delivery truck costing $22.000 is expected to have a $2,000 salvage value at the end of its useful life of four years or 100,000 miles. Assume that the truck was purchased on January 2. Calculate the depreciation expense for the second year using each of the following depreciation methods: (a) straight-line, (b) double-declining balance, and (c) units-of- production. (Assume that the truck was driven 30,000 miles in the second year.) Round all answers to the nearest dollar. a. Straight line b. Double-declining balance $ c Units-of-production

Answer 1

Depreciation Expense for the second year

		Depreciation
(a)	Straight-Line	$5,000
(b)	Double-Declining-Balance	$5,500
(c)	Units-of-Production	$6,000

(a)-Straight-Line Method

Depreciation Expense = (Cost - Residual Value) / Useful Life

= [$22,000 - $2,000] / 4 Years

= $20,000 / 4 Years

= $5,000 per year

(b)-Double-Declining-Balance Method

Depreciation under Double Declining Balance = Beginning Balance x 2 x Straight Line Depreciation Rate*

*Straight Line Depreciation Rate = 1 / Useful Life

= 1 / 4

= 0.25

Depreciation Expense for the first year = Beginning Balance x 2 x Straight Line Depreciation Rate

= $22,000 x 2 x 0.25

= $11,000

Depreciation Expense for the second year = Beginning Balance x 2 x Straight Line Depreciation Rate

= [$22,000 - $11,000] x 2 x 0.25

= $5,500

(c)-Units-of-Production Method

Depreciation under units of production method = [Cost of the asset – Residual Value] x [Actual KM / Expected total KM]

= [$22,000 - $2,000] x [30,000 Miles / 100,000 Miles]

= $6,000