Leaping Deer Company purchased a tractor at a cost of $240,000. The tractor has an estimated residual value of $40,000 and an estimated life of 8 years, or 12,000 hours of operation. The tractor was purchased on January 1, 2015 and was used 2,400 hours in 2015 and 2,200 hours in 2016.
What method of depreciation will produce the maximum depreciation expense in 2016?
A) Straight-line
B) Double-declining-balance
C) Units-of-production
D) All methods produce the same expense in 2016

Question

Quizplus · Accepted Answer

Rationale:
Straight-Line: ($240,000 ? $40,000) / 8 = $25,000 per year
Double-declining balance: $240,000 × (1/8 × 2) = $60,000 for 2015
($240,000 ? $60,000) × 1/4 = $45,000 for 2016
Units of production: ($240,000 - 40,000) × (2, 200 hours / 12,000 hours) = $36,667 for 2016

Leaping Deer Company Purchased a Tractor at a Cost of $240,000