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Ahat [919]
3 years ago
6

Saul Company purchased a tractor at a cost of $180,000. The tractor has an estimated salvage value of $20,000 and an estimated l

ife of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,200 hours in 2020. What method of depreciation will produce the maximum depreciation expense in 2019?
a. Units-of-production
b. Double-declining-balance
c. Straight-line
d. All methods produce the same expense in 2019
Business
1 answer:
Mila [183]3 years ago
5 0

Answer:

b. Double-declining-balance

Explanation:

There is no harm in trying out all the methods and see for your self the one that will produce the maximum depreciation expense in 2019.

Units-of-production

Depreciation Expense = Units taken in the Period / Expected total amounts in units × Depreciable Amount (Cost - Salvage Value)

Therefore,

Depreciation Expense = 2,400 hours / 12,000 hours × ( $180,000 - $20,000)

                                      = $32,000

Double -declining-balance

Depreciation Expense = 2 × SLDP × BVSLDP

SLDP = 100 ÷ Number of useful Life

         = 100 ÷ 8

         = 12.5 %

Therefore,

Depreciation Expense = 2 × 12.5 % × $180,000

                                      = $45,000

Straight Line

Depreciation Expense = Cost - Residual Value ÷ Estimated Useful Life

                                     = ($180,000 - $20,000) ÷ 8 years

                                     = $20,000

<u>Conclusion</u>

As can be seen from the above calculation, Double-declining-balance produce the maximum depreciation expense in 2019.

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