Question 5 (Mandatory) (4 points) B Green Deer Company purchased a tractor at a

Question

Question 5 (Mandatory) (4 points) B Green Deer Company purchased a tractor at a cost of $120,000. The tractor has an estimated residual value of $20,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2012 and was used 2,400 hours in 2012 and 2,200 hours in 2013. What method of depreciation will produce the lowest depreciation expense in 2012? All methods produce the same expense in 2012 Straight-line Units-of-production Double-declining-balance

Explanation / Answer

Correct answer is optionB.Stright line depreciation

Calculation of depreciation for 2012

1.Stright line method

Depreciation=(Cost-Salvage value)/Usefull life

=120,000-20,000)/8

=$12500

2.Units of production

Depreciation =( Cost-Salvage value)*No.of hours used/Total hours

=(120,000-20,000)*2400/12000

=$20,000

3.Double declaining method

Depreciation rate= (1/8)*200%=25%

Depreciation for 2012=120,000*25%

=$30,000

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