BagODonuts company bought a used delivery truck on Jan. 1, 2010

BagODonuts company bought a used delivery truck on Jan. 1, 2010, for $19,200. The van was expected to remain in service 4 years (30,000) miles. BagODonuts accountant estimated that the truck’s residual value would be $2,400 at the end of its useful life. The truck traveled 8,000 miles the first year, 8,500 miles the second year, 5,500 miles the third year, and 8,000 miles the fourth.

1. Calculate depreciation expense for the truck each year (2010-2013) using:

a. straight lined method

b. double declining balance method

c. units of production method (round to nearest two decimals after each step of calculation)

2. Which method best tracks the wear and tear of the van?

3. Which method would BagODonuts prefer to use for income tax purposes?

Here’s the SOLUTION

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