Question

Question 2 (40 points) Please provide your response to the nearest integer with no comma or $ sign. A tractor for over-the-road hauling is purchased for $98,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $3,000. Calculate the depreciation deduction and the the book value during each year of the tractors life. Use straight-line depreciation. Provide depreciation and book value for year 6. Depreciation for year 6 = $ Using SLN determine book value for year 6 = $ Use declining-balance depreciation at 150% of the straight line rate. Provide depreciation and book value for year Depreciation for year 6 = $ Use declining-balance depreciation, Book value for year 6 = $ Use double declining balance depreciation. Provide depreciation and book value for year 6. Depreciation for year 6 = $ Book value for year 6 = $

Answer 1

The following information is given

Purchased price of tractor 98000 , Salvage Value 3000

Life 6 years Depreciation Method : Straight Line Method

1. Calculation of depreciation for each year and book value

Depreciation for each year = (Purchased Price - Salvage Value)/Life

= (98000 - 3000)/6

= 15833

Year Depreciation Book Value

1 15833 98000 - 15833 = 82167

2 15833 82167 - 15833 = 66334

3 15833 66334 - 15833 = 50501

4 15833 50501 - 15833 = 34668

5 15833 34668 - 15833 = 18835

6 15835(round off) 8335 - 15835 = 3000

2. - Depreciation for year 6 is 15835 and book value at the 6th year end is 3000

3. - Declining balance depreciation method @ 150%of Straight Line Rate

Rate = 150% * 15.83 = 23.75 %

Year     Depreciation Book Value

1 23.75% * 98000 = 23275 98000 - 23275 = 74725

2 23.75% * 74725 = 17747 74725 - 17747 = 56978

3 23.75% * 56978 = 13532 56978 - 13532 = 43446

4 23.75 % * 43446 = 10318 43446 - 10318 = 33128

5 23.75 % * 33125 = 7868 33128 - 7868 = 25260

6 23.75 % * 25260 = 6000 25260 - 6000 = 19260

Depreciation for the 6th year is 6000 and the book value at 6th year end is 19260

4. Using double declining depreciation method i.e 31.67 %

Year Depreciation Book Value

1 31.67% * 98000 = 31037 98000 - 31037 = 66963

2 31.67 % * 66963 = 21207 66963 - 21207 = 45756

3 31.67 % * 45756 = 14491 45756 - 14491 = 31265

4 31.67 % * 31265 = 9902 31265 - 9902 = 21363

5 31.67% * 21363 = 6766 21363 - 6766 = 14597

6 31.67 % * 14597 = 4623 14597 - 4623 = 9974

The depreciation for the 6th year is 4623 and book value at 6th year end is 9974