Question

Doe, Inc. purchased a bulldozer at a cost of $300,000. The bulldozer has an estimated residual value of $20,000 and an estimated life of 10 years, or 15,000 hours of operation. The bulldozer was purchased on January 1, 2020 and was used 500 hours in 2020 and 3,000 hours in 2021.

What method of depreciation will produce the maximum depreciation expense in 2021?

Select one: A. Straight-line B. Double-declining-balance C. Units-of-production D. All methods produce the same expense in 2021

Answer 1

A. Straight line Depreciation method:-

Depreciation pa => (Cost - Salvage Value)/Useful life. => ($300,000 - $20,000) / 10 => $28,000.

Depreciation Expense for 2021 => $28,000.

B.Double Declining Balance Method :-

Depreciation rate => (2/useful life ) =>(2/10)*100 =>20%. Depreciation Expense => (Cost * Depreciation rate) 2020=>($300,000 * 20%) => $60,000. 2021=>[$300,000 - $60,000] * 20% => $48,000.

C. UNITS OF PRODUCTION METHOD:-

Depreciation Expense per hour =>(Cost - Salvage Value)/total hours

=> ($300,000 - $20,000)/15,000 = $18.67.

Depreciation Expenses for 2021 => Hours * depreciation rate per hour => 3,000 hrs * $18.67 = $56,000.

D. No, each method produces different Depreciation in the year 2021.

If you have any doubts please comment on the answer.