Bing's Export Co

Question

Bing's Export Co.
Bing's Export Co. purchased a new delivery truck at the beginning of 2015. The truck has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2015. The truck was driven 20,000 miles during 2015 and 24,000 miles during 2016. The number of expected miles over five years is 100,000.

Refer to information about Bing's Export Co.

Bing's Export Co. wants to use the depreciation method that will result in the highest depreciation expense for 2015. Which method should be used?
a. Units-of-production
b. All methods create the same income in 2015
c. Double-declining-balance
d. Straight-line

Answer 1

You can easily eliminate parts b and d. Straight-line depreciation is always less than DDB in the early years. To choose between A and C you calculate.

 

With a 5 year life the straight line rate is 20% sod DDB uses 40%. first year depreciation is 37,000 * .4 = $14,800

 

Units of production is Cost - salvage value) 8 percentage used.

 

(37,000 - 7,000) * 20/100 miles = $6,000

 

DDB wins.