On January 1, Titan Trucking purchased a used Kenworth truck at a cost of $48,000. Titan Trucking expects the truck to remain useful for four years (800,000 miles) and to have a residual value of $8,000. Titan Trucking expects the truck to be driven 160,000 miles the first year and 280,000 miles the second year. Requirements 1. Compute Titan Trucking’s first-year depreciation expense on the truck using the following methods: a. Straight-line b. Units of production c. Double-declining balance

A. $10,000

B. $8,000

C. $24,000

Explanation:

We are to calculate the depreciation using three methods.

A. Straight-line method:

First we calculate the depreciable amount = $48,000 - $8,000

= $40,000

Depreciation expense for the first year ended Dec 31:

= $40,000/useful life

= $40,000/4

= $10,000.

Therefore, first year depreciation expense is $10,000 and there will be a yearly depreciation of $10,000 as the depreciation amount is expected to be the same.

B. Units of production method:

First, we calculate the units of production rate thus:

(Cost - salvage value)/estimated units to be produced over useful life

= ($48,000 - $8,000)/800,000

= 40,000/800,000

= 0.05

Units of production is 0.05.

Now we multiply 0.05 by the actual miles driven in first year to get the first year depreciation expense.

160,000 x 0.05 = $8,000

Therefore, first year depreciation expense is $8,000.

C. Double-declining balance method:

For this method, we first divide 100% by the useful life, thus

100%/4 = 25%

Now we multiply this percentage by 2

25% x 2 = 50%

Therefore, double-declining depreciation rate is 50%.

50% of the cost will give us the depreciation per year.

50% x $48,000

= $24,000

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