Question 6 25 pts (TCO 6) BagDonuts Company bought a used delivery truck on Janu

Question

Question 6 25 pts (TCO 6) BagDonuts Company bought a used delivery truck on January 1, 2010, for $19,200. The van was expected to remain in service 4 years (30,000 miles). BagoODonuts' accountant estimated that the truck's residual value would be $2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500 miles the second year, 5,500 miles the third year, and 8,000 miles in the fourth year. 1. Calculate depreciation expense for the truck for each year (2010-2013) using the: a. Straight-line method b. Double-declining balance method. c. Units of Production method. (For units-of-production and double-declining balance, round to the nearest two decimals after each step of the calculation.) 2. Which method best tracks the wear and tear on the van? 3, which method would BagDonuts prefer to use for income tax purposes? Explain in detail why BagoDonuts prefers this method. HTML Editor

Explanation / Answer

1) Straight line method (19200-2400)/4 4200 $4,200 each year b DDB rate = 1/4*2= 0.5 year amount dep BV 1 19,200 9600 9600 2 9,600 4800 4800 3 4800 2400 2400 4 2400 0 2400 c units production method (19200-2400)/30000 0.56 year dep 1 4480 2 4760 3 3080 4 4480 2) units of production method 3) Double declining method because it provides the greates reduction in taxable income

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