Fabian Woodworks

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020.
-Refer to Fabian Woodworks. Based on the information presented above, what method of depreciation will maximize depreciation expense in 2020?

Question

Fabian Woodworks
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This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020.
-Refer to Fabian Woodworks. Based on the information presented above, what method of depreciation will maximize depreciation expense in 2020?

Quizplus · Accepted Answer

The double-declining-balance method front-loads depreciation expense, meaning that it will result in a higher depreciation expense in the earlier years of an asset's life. This method will maximize depreciation expense in 2020 since the asset has already been used for two years and will likely have a lower salvage value in the future. Both the straight-line and units-of-production methods produce a lower depreciation expense in the earlier years compared to the double-declining-balance method.

Fabian Woodworks ​

Fabian Woodworks