Depreciation Expense Amounts. Please show solution for each step. 1) Company pur

Question

Depreciation Expense Amounts. Please show solution for each step.

1) Company purchased a truck on January 1, 2009, at a cost of $34,000. The company estimated that the truck would have a useful life of 4 years and a residual value of $4,000.

A. Calculate depreciation expense under straight line and double declining balance for 2006-2009.

Year              Depreciation                           Depreciation

                   Straight-line method             Declining balance method

                                                              200% acceleration rate

2006            

2007

2008

2009

B. Which of the two methods in part A would result in:

(1.) Lower net income in 2007?

(2.) Lower net income in 2008?

Explanation / Answer

Year Computation Depreciation Accumulated Book Value Expense Depreciation 34000 2006 (34,000-4,000) * 25% 7500 7500 26500 2007 (34,000-4,000) * 25% 7500 15000 19000 2008 (34,000-4,000) * 25% 7500 22500 11500 2009 (34,000-4,000) * 25% 7500 30000 4000 30000 Depreciation Using Double Declining Depreciation 34000 2006 34000 *40% 13600 13600 20400 2007 20,400 *40% 8160 21760 12240 2008 12240*40% 4896 26656 7344 2009 7344-4000 3344 30000 4000 30000 In both cases, Straight line would result in lower Net Income Year Computation Depreciation Accumulated Book Value Expense Depreciation 34000 2006 (34,000-4,000) * 25% 7500 7500 26500 2007 (34,000-4,000) * 25% 7500 15000 19000 2008 (34,000-4,000) * 25% 7500 22500 11500 2009 (34,000-4,000) * 25% 7500 30000 4000 30000 Depreciation Using Double Declining Depreciation 34000 2006 34000 *40% 13600 13600 20400 2007 20,400 *40% 8160 21760 12240 2008 12240*40% 4896 26656 7344 2009 7344-4000 3344 30000 4000 30000

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