Falling Leaves Lawn Care

This company purchased new excavating equipment at the beginning of 2019. The equipment has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2019. The equipment was used 20,000 hours during 2019 and 24,000 hours during 2020. The number of expected hours over 5 years is 100,000.
-Refer to Falling Leaves Lawn Care. The company wants to use the depreciation method that will result in the highest depreciation expense for 2019. Which method should be used?

Question

Falling Leaves Lawn Care
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This company purchased new excavating equipment at the beginning of 2019. The equipment has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2019. The equipment was used 20,000 hours during 2019 and 24,000 hours during 2020. The number of expected hours over 5 years is 100,000.
-Refer to Falling Leaves Lawn Care. The company wants to use the depreciation method that will result in the highest depreciation expense for 2019. Which method should be used?

Quizplus · Accepted Answer

The double-declining-balance method results in higher depreciation expense in the earlier years of an asset's life, which aligns with the company's goal of maximizing depreciation expense for 2019. This method calculates depreciation as a percentage of the asset's book value, resulting in a higher expense in the earlier years when the book value is higher.