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BagODonuts Company bought a used
delivery truck on January 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 in the fourth year.
1. Calculate depreciation expense for the truck for each
year (2010-2013) using the:
a. Straight-line method.
b. Double-declining balance method.
c. Units of Production method.
(For units-of-production and double-declining balance, round
to the nearest two decimals after each step of the calculation.)
2. Which method best tracks the wear and tear on the van?
3. Which method would BagODonuts prefer to use for income
tax purposes? Explain in detail why BagODonuts prefers this method. (Points :
25)
