Question

Tom's Truckers purchased a new truck for $160,000. The company expected the truck to last 5 years or 100,000 miles, with an estimated salvage value of 120,000 at the end of that time. In the first year, the truck was driven 24,000 miles.

* As the account for Tom, you can depreciate this truck using the

a.) Double declining balance or the

b.) Units of production method.

* Which method of depreciation will allow the largest write-off in the first year ( show work)?

* How much greater would the depreciation expense be using this method?

2. A cargo van purchased by Tiger's Transport should last 5 years. The purchase price was $120,000. The trade-in value is $10,000.

* Using the double declining balance method, calculate the accumulated depreciation at the end of year 2. Round the declining balance rate to 4 decimal places, and all dollar amounts to the nearest cent.

3. Barb is a 47 year old female and wants to purchase $209,000 in straight life insurance. If the rate per thousand from the chart shows rate per thousand of $18.29, how much would the life insurance cost her?

Answer 1

Answer to Question 1.
Double Declining Balance method:
Double Declining Depreciation Rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1 / Useful Life
Straight Line Depreciation Rate = 1/5 = 20%

Double Declining Depreciation Rate = 2 * 20% = 40%

Depreciation Expense for First Year = $160,000 * 40%
Depreciation Expense for First Year = $64,000

Units of Production method:
Depreciation Expense per unit = (Cost – Salvage Value) / Expected Production
Depreciation Expense per mile = ($160,000 - $120,000) / 100,000
Depreciation Expense per mile = $0.40

Depreciation Expense for First Year = $0.40 * 24,000
Depreciation Expense for First Year = $9,600

Double Declining Balance method would result in largest write off in the first year as it has higher Depreciation expense in First Year.

Depreciation Expense would be greater by $54,400 ($64,000 - $9,600) by using Double Declining balance method.