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19 July, 18:37

Leaping Deer Company purchased a tractor at a cost of $240,000. The tractor has an estimated residual value of $40,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2015 and was used 2,400 hours in 2015 and 2,200 hours in 2016.

What method of depreciation will produce the maximumdepreciation expense in 2015?

A. Straight-line

B. Double-declining-balance

C. Units-of-production

D. All methods produce the same expense in 2015

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  1. 19 July, 19:29
    0
    B. Double-declining-balance

    Explanation:

    The computation of the depreciation expense for 2015 is shown below:

    a) Straight-line method:

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

    = ($240,000 - $40,000) : (8 years)

    = ($200,000) : (4 years)

    = $25,000

    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 : 8

    = 12.5%

    Now the rate is double So, 25%

    In year 2015, the original cost is $240,000, so the depreciation is $60,000 after applying the 25% depreciation rate

    (c) Units-of-production method:

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

    = ($240,000 - $40,000) : (12,000 hours)

    = ($200,000) : (12,000 hours)

    = $16.67

    Now for the 2015 year, it would be

    = Production hours in 2015 year * depreciation per hour

    = 2,400 * $16.67

    = $40,000
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