Answer:
a. $27,000
b. $54,000 and $43,200
Explanation:
The calculation of the depreciation expense for the two years are presented below:
a) Straight-line method:
= (Acquired value of tractor - residual value) ÷ (estimated useful life)
= ($270,000 - $0) ÷ (10 years)
= ($270,000) ÷ (10 years)
= $27,000
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 ÷ estimated useful life
= 1 ÷ 10
= 10%
Now the rate is double So, 20%
In year 1, the original cost is $270,000, so the depreciation is $54,000 after applying the 40% depreciation rate
And, in year 2, the depreciation expense would be
= ($270,000 - $54,000) × 20%
= $216,000 × 20%
= $43,200
