Question
R. C. Smith purchased a truck for $30,500 to be used in his business. He is considering depreciating the truck by two methods: units-of-output (assuming
R. C. Smith purchased a truck for $30,500 to be used in his business. He is considering depreciating the truck by two methods: units-of-output (assuming total miles driven of 80,000) and double-declining balance (assuming a five-year useful life). The truck is expected to be sold for approximately $6,500 at the end of its useful life.
a. Prepare a comparison of the first year's depreciation expense that will be recognized under these methods, assuming the truck was actually driven 10,000 miles in the first year.
1. Units of Output method of depreciation: $
2. Double-Declining Balance method of depreciation: $
b. The difference between the depreciation amount under the two methods is so great because, (Select all that apply.)
___ Useful life of the truck is low.
___ The Double-declining balance method is affected by the lower number of miles driven.
___ Double-declining balance is an accelerated method and naturally results in higher depreciation in the early years of the asset's life.
___ Units-of-output method of depreciation is not affected by the lower number of miles driven.
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