During 2011, I wanted to purchase a new car. I always dreamed of myself sitting

Question

During 2011, I wanted to purchase a new car. I always dreamed of myself sitting in a Jaguar XK 2 - door convertible and started to look at the prices of that car. I was told that I could get a car fully loaded that normally lists for $120,000 for a great bargain for $96,000. I really could get a $24,000 off of the MSRP. I also looked at Hyundai Sonata that lists for $24,500 for a great deal of $500 off the list price. Sad to say, I ended up buying the Hyundai Sonata. During the 4 plus years, I put 125000 miles in my Hyundai. I drive a lot and commute 55 miles to work each way. I went to the Kelly Blue Book site ( www.kbb.com ) and priced these two cars. When I entered all the particulars, the book value for a 2011 Jaguar XK 2 door convertible came out to be $26,000 and the 2011 Hyunda i Sonata was prices at $5,200. Thus the Jaguar lost $70,000 in 4 years and the Sonata $18,800 during the same time. Create the depreciation schedule for these two cars using the three methods of depreciation discussed in lesson 5 .

1. Straight - Line Depreciation:

2. Declining Balance Depreciation:

3. MACRS Depreciation:

Treat this as a 5 - year property class.

Explanation / Answer

1. Straight - Line Depreciation:

     Jaguar XK 2 - door convertible  = (120000-26000) / 4years)

= $23500 per year

   Hyundai Sonata = ( 24500- 5200) / 4 years

= $4825 per year

2. Declining Balance Depreciation:   

straight line depreciation rate = 1 / 4 year * 100

=25%

Depreciation under double declining balance = 2 * 25%

= 50%

   Jaguar XK 2 - door convertible

   year depreciation expense Book value

2011 120000*50% =60000 120000 -60000 = 60000   

2012 60000 *50% = 30000 60000 - 30000 = 30000

2013 30000 *50% = 15000 30000 -15000 = 15000

2014 15000 *50% = 7500 15000 -7500 = 7500

  Hyundai Sonata

year depreciation expense Book value

2011 24500 *50% = 12250 24500 -12250 = 12250

2012 12250 *50% = 6125 12250 - 6125 = 6125

2013 6125 *50% = 3063 6125 - 3063 = 3062

2014 3062*50% = 1531 3062 - 1531 = 1531

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