Question

Sual Company purchased a tractor at a cost of $180,000. The tractor has an estimated salvage value of $20,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2019 and was used 2,400 hours in 2019 and 2,200 hours in 2020. What method of depreciation will produce the maximum depreciation expense in 2020

Answer 1

Double-declining balance

Step-by-step explanation:

Calculation to determine What method of depreciation will produce the maximum depreciation expense in 2020

Based on the information given we would be using the Straight-Line method, Double-declining balance and Units of production to determine the method of depreciation that will produce the maximum depreciation expense in 2020

Straight-Line method =($180,000 ‒ $20,000) / 8 Straight-Line method= $20,000 per year

Double-declining balance= $180,000 × (1/8 × 2)

Double-declining balance= $45,000 for 2019

Double-declining balance= ($180,000 ‒$45,000) × 1/4

Double-declining balance= $33,750 for 2020

Units of production=($180,000 - 20,000) × (2, 200 hours / 12,000 hours)

Units of production=$160,000*0.1833333

Units of production = $29,333 for 2020

Therefore the method of depreciation that will produce the maximum depreciation expense in 2020 is DOUBLE-DECLINING METHOD.