Question

Omaha Beef Company purchased a delivery truck for $66,000. The residual value at the end of an estimated eight-year service life is expected to be $12,000. The company uses straight-line depreciation for the first six years. In the seventh year, the company now believes the truck will be useful for a total of 10 years (four more years), and the residual value will remain at $12,000. Calculate depreciation expense for the seventh year.

Answer 1

Given:

Company purchased = $66000

Find-:

Depreciation expense for the seventh year

Sol:

First, depreciate for 6 years using the regular method:

`\begin{gathered} =\frac{\text{ Cost - salvage value}}{\text{ initial useful life}} \\ \\ =(66000-12000)/(8) \\ \\ =6750 \end{gathered}`

The annual depreciation is 6750.

For 6 years

`\begin{gathered} =6750*6 \\ \\ =40500 \end{gathered}`

So

`\begin{gathered} \text{ Remaining useful life = 10-6} \\ =4 \\ \\ =(66000-40500-12000)/(4) \\ \\ =(13500)/(4) \\ \\ =3375 \end{gathered}`

For seventh-year depreciation expense is $3375