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22 May, 12:29

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 Answer b. Double-declining balance Answer c. Units-of-production Answer

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  1. 22 May, 12:47
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    a. $5,000

    b. $5,500

    c. $6,000

    Explanation:

    The computation of the depreciation expense for the second year is shown below:

    a) Straight-line method:

    = (Original cost - residual value) : (useful life)

    = ($22,000 - $2,000) : (4 years)

    = ($20,000) : (4 years)

    = $5,000

    In this method, the depreciation is same for all the remaining useful life

    (b) Double-declining balance method:

    First we have to find the depreciation rate which is shown below:

    = One : useful life

    = 1 : 4

    = 25%

    Now the rate is double So, 50%

    In year 1, the original cost is $22,000, so the depreciation is $11,000 after applying the 50% depreciation rate

    And, in year 2, the $11,000 * 50% = $5,500

    (c) Units-of-production method:

    = (Original cost - residual value) : (estimated production)

    = ($22,000 - $2,000) : ($100,000 miles)

    = ($20,000) : ($100,000 miles)

    = $0.2 per miles

    Now for the second year, it would be

    = Production units in second year * depreciation per miles

    = 30,000 miles * $0.2

    = $6,000
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