Wilson, Inc., purchased a truck to use for deliveries and is attempting to determine how muchdepreciation expense would be recognized under three different methods. The truck cost $24,000and is expected to have a value of $6,000 at the end of its six-year life. The truck is expected to beused at the rate of 15,000 miles in the first year, 20,000 miles in the second and third years, and12,000 miles in the fourth, fifth, and sixth years.Instructions a. Determine the amount of depreciation expense that will be recognized under each of the fol-lowing depreciation methods in the first and second years of the truck’s useful life. A full year’s depreciation will be recognized in the first year the truck is used.1. Straight-line.2. Double-declining-balance.3. Units-of-output (based on miles).
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Wilson, Inc., purchased a truck to use for deliveries and is attempting to determine how much
and is expected to have a value of $6,000 at the end of its six-year life. The truck is expected to be
used at the rate of 15,000 miles in the first year, 20,000 miles in the second and third years, and
12,000 miles in the fourth, fifth, and sixth years.
Instructions
a. Determine the amount of depreciation expense that will be recognized under each of the fol-
lowing depreciation methods in the first and second years of the truck’s useful life. A full
year’s depreciation will be recognized in the first year the truck is used.
1. Straight-line.
2. Double-declining-balance.
3. Units-of-output (based on miles).
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