-----Straight-Line Method: 1. Corales Company acquires a delivery truck at a cos

Question

-----Straight-Line Method:

1.    Corales Company acquires a delivery truck at a cost of $38,000. The truck is expected to have a salvage value of $6,000 at the end of its 4-year useful life.

Compute annual depreciation expense for the first and second year using straight line method.

------Double Declining Method:

.

2.  Depreciation information for Corales Company is given above. Assuming the declining-balance depreciation rate is double the straight-line rate.

Compute annual depreciation for the first and second years under the double declining method.

---------Units of Activity Method:

3. Rosco Taxi Service uses the units of activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 150,000 miles. Taxi no. 1o cost $39,500 and is expected to have a salvage value of $500. Taxi no. 10 is driven 30,000 miles in year 1 and 20,000 miles in year 2.

Compute the depreciation for each year.

Explanation / Answer

1) Straight line dep = (38000-6000/4) = 8000 per year

First year dep = 8000

Second year dep = 8000

2) Straight line dep rate = 100/4 = 25%

Double decline rate = 25*2 = 50%

First year dep = 38000*50% = 19000

Second year dep = 19000*50% = 9500

3) Dep rate = (39500-500/150000) = 0.26 per mile

First year dep = 30000*.26 = 7800

Second year dep = 20000*.26 = 5200

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