Math  /  Word Problems

QuestionCalculate yearly depreciation for a van purchased for \$55,000 with a residual value of \$5,000 over 4 years using: a. straight-line, b. units-of-production, c. double-declining-balance methods.

Studdy Solution
Calculate the depreciation expense for each year using the double-declining-balance method.
For the first yearDepreciationExpense=$55,000times2times0.25=$27,500Depreciation\, Expense = \$55,000 \\times2 \\times0.25 = \$27,500For the second yearDepreciationExpense=($55,000$27,500)times2times0.25=$13,750Depreciation\, Expense = (\$55,000 - \$27,500) \\times2 \\times0.25 = \$13,750For the third yearDepreciationExpense=($55,000$27,500$13,750)times2times0.25=$6,875Depreciation\, Expense = (\$55,000 - \$27,500 - \$13,750) \\times2 \\times0.25 = \$6,875For the fourth yearDepreciationExpense=($55,000$27,500$13,750$6,875)times2times0.25=$3,437.50Depreciation\, Expense = (\$55,000 - \$27,500 - \$13,750 - \$6,875) \\times2 \\times0.25 = \$3,437.50However, the depreciation expense for the fourth year should not reduce the book value below the residual value. So, the depreciation expense for the fourth year should be adjusted to \$3,437.50 - (\$3,437.50 + \$27,500 + \$13,750 + \$6,875 - \$5,000) = \$2,562.50.
The depreciation schedule is as follows| Year | Straight-Line | Units-of-Production | Double-Declining-Balance | |------|---------------|---------------------|--------------------------| | | \$12,500 | \$15,000 | \$27,500 | |2 | \$12,500 | \$12,500 | \$13,750 | |3 | \$12,500 | \$11,250 | \$6,875 | | | \$12,500 | \$11,250 | \$2,562.50 |

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