A light truck is purchased on January 1 at a cost of $27,000. It is expected to serve for eight years and have a salvage value of $3,000. Calculate the depreciation expense for the first and third years of the truck's life using the following methods. If required, round your answers to two decimal places
A light truck is purchased on January 1 at a cost of $27,000. It is expected to serve for eight years and have a salvage value of $3,000. Calculate the depreciation expense for the first and third years of the truck's life using the following methods. If required, round your answers to two decimal places.
tehebeer 54 436 g
To calculate the depreciation expense for the first and third years of the truck's life using different methods, we need to use either the straight-line method or the declining balance method. Let's calculate the depreciation expense for each method step by step:
1. Straight-Line Method:
The straight-line method allocates an equal amount of depreciation expense each year over the truck's useful life.
Depreciation Expense per Year = (Cost - Salvage Value) / Useful Life
For the first year:
Depreciation Expense = ($27,000 - $3,000) / 8 = $3,000
For the third year:
Depreciation Expense remains the same for each year, so it will also be $3,000.
2. Declining Balance Method:
The declining balance method uses a fixed percentage to calculate the depreciation expense, which decreases each year.
Depreciation Expense per Year = (Book Value at the Beginning of the Year) × (Depreciation Rate)
Depreciation Rate = (100% / Useful Life)
For the first year:
Depreciation Rate = 100% / 8 = 12.5%
Depreciation Expense = $27,000 × 12.5% = $3,375
For the third year:
Depreciation Rate remains the same for each year, so it will still be 12.5%.
Depreciation Expense = $24,625 (Book value at the beginning of the third year) × 12.5% = $3,078.13 (round to two decimal places)
Therefore, the depreciation expense for the first year would be $3,000 for both methods, while the depreciation expense for the third year would be $3,000 (straight-line method) and $3,078.13 (declining balance method).