On January 1 Logan Trucking purchased a used Kenworth truck

On January 1, Logan Trucking purchased a used Kenworth truck at a cost of $42,000. Logan Trucking expects the truck to remain useful for ten years (370,000 miles) and to have a residual value of $5,000. Logan Trucking expects the truck to be driven 74,000 miles the first year and 129,500 miles the second year Read the requirements Requirement 1. Compute Logan Trucking\'s first-year depreciation expense on the truck using (a) Straight-line, (b) Units-of-production, and (c) Double-declining-balance. Start by selecting the formulas needed to compute annual depreciation under each of the three methods. Units-of production depreciation a. Straight-line b. Units-of ine method 2. Show the truck\'s book value at the end of the first year under the Print Done

Solution

STRAIGHT LINE DEPRECIATION PURCHASE PRICE - RESIDUAL VALUE LIFE OF ASSET $42000-$5000 10 $3,700= DEPRECIATION UNITS OF PRODUCTION DEPRECIATION (COST   RESIDUAL VALUE)*ACTUAL PRODUCTION THIS PERIOD                                                     ESTIMATED TOTAL DEPRECIATION ($42000-$5000)*74000 370000 $7,400=DEPRECIATION DOUBLE-DECLINING BALANCE METHOD 1. Straight-Line Depreciation Percent = 100% / Useful Life 2. Depreciation Rate = 2 x Straight-Line Depreciation Percent 3. Depreciation for a Period = Depreciation Rate x Book Value at Beginning of the Period 4. If the first year is not a full 12 months and is a number M months, the first and last years will be calculated First Year Depreciation Rate = M/12 x Depreciation Rate Last Year Depreciation Rate = (12-M)/12 x Depreciation Rate 100%/10=10% 2*10%=20% 20%*$42000=$8400=DEPRECIATION BOOK VALUE OF TRUCK UNDER STRAIGHT LINE METHOD = COST -ACCUMULATED DEP =$42000-$3700 =$38,300