A corporation will buy a set of three heavy duty trucks for 100,000 dollars. The
ID: 2770408 • Letter: A
Question
A corporation will buy a set of three heavy duty trucks for 100,000 dollars. The company will use the trucks for 10 years and expect the set of three to have a salvage value of 9000 dollars. Using the DDB method of depreciation compute the Book Value and yearly depreciation for the set of trucks for the years 3 and 8. (a) Using the mandated MACRS tables compute the Book Value and yearly depreciation for the set of trucks for the years 2 and 9. (b) Using the DB method such that the book value equals the salvage value after 10 years calculate the Book value and yearly depreciation for the years 4 and 7 (c) Show all intermediate steps including as appropriate: rate used, property class and any other significant intermediate resultsExplanation / Answer
Formula for DDB Depreciation = 2 x Rate for Straight line method x Book Value at the starting of the year
Double Declining Balance Method
Year
Basis
%
Depreciation Expense
Ending Book Value
1
$100,000.00
10%
$20,000.00
$80,000.00
2
$80,000.00
10%
$16,000.00
$64,000.00
3
$64,000.00
10%
$12,800.00
$51,200.00
4
$51,200.00
10%
$10,240.00
$40,960.00
5
$40,960.00
10%
$8,192.00
$32,768.00
6
$32,768.00
10%
$6,553.60
$26,214.40
7
$26,214.40
10%
$5,242.88
$20,971.52
8
$20,971.52
10%
$4,194.30
$16,777.22
9
$16,777.22
10%
$3,355.44
$13,421.77
10
$13,421.77
10%
$2,684.35
$10,737.42
MACRS Depreciation Method: IRS provides a table for applicable rates.
10 Years Schedule
Year
Basis
%
Depreciation Expense
Accumulated Depreciation
Ending Book Value
1
$100,000.00
10.000%
$10,000.00
$10,000.00
$90,000.00
2
$100,000.00
18.000%
$18,000.00
$28,000.00
$72,000.00
3
$100,000.00
14.400%
$14,400.00
$42,400.00
$57,600.00
4
$100,000.00
11.520%
$11,520.00
$53,920.00
$46,080.00
5
$100,000.00
9.216%
$9,216.00
$63,136.00
$36,864.00
6
$100,000.00
7.373%
$7,373.00
$70,509.00
$29,491.00
7
$100,000.00
6.554%
$6,554.00
$77,063.00
$22,937.00
8
$100,000.00
6.554%
$6,554.00
$83,617.00
$16,383.00
9
$100,000.00
6.554%
$6,554.00
$90,171.00
$9,829.00
10
$100,000.00
6.554%
$6,554.00
$96,725.00
$3,275.00
11
$100,000.00
3.277%
$3,277.00
$100,002.00
-$2.00
To get the book value of $9,000 (Equal to salvage value), the rate of depreciation will be 10.70%
Double Declining Balance Method
Year
Basis
%
Depreciation Expense
Ending Book Value
1
$100,000.00
10.70%
$21,400.00
$78,600.00
2
$78,600.00
10.70%
$16,820.40
$61,779.60
3
$61,779.60
10.70%
$13,220.83
$48,558.77
4
$48,558.77
10.70%
$10,391.58
$38,167.19
5
$38,167.19
10.70%
$8,167.78
$29,999.41
6
$29,999.41
10.70%
$6,419.87
$23,579.54
7
$23,579.54
10.70%
$5,046.02
$18,533.52
8
$18,533.52
10.70%
$3,966.17
$14,567.34
9
$14,567.34
10.70%
$3,117.41
$11,449.93
10
$11,449.93
10.70%
$2,450.29
$8,999.65
Double Declining Balance Method
Year
Basis
%
Depreciation Expense
Ending Book Value
1
$100,000.00
10%
$20,000.00
$80,000.00
2
$80,000.00
10%
$16,000.00
$64,000.00
3
$64,000.00
10%
$12,800.00
$51,200.00
4
$51,200.00
10%
$10,240.00
$40,960.00
5
$40,960.00
10%
$8,192.00
$32,768.00
6
$32,768.00
10%
$6,553.60
$26,214.40
7
$26,214.40
10%
$5,242.88
$20,971.52
8
$20,971.52
10%
$4,194.30
$16,777.22
9
$16,777.22
10%
$3,355.44
$13,421.77
10
$13,421.77
10%
$2,684.35
$10,737.42
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