Wexford Co.purchased a new delivery truck at the beginning of 2016.The truck 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 2016.The truck was driven 20,000 miles during 2016 and 24,000 miles during 2017.The number of expected miles over five years is 100,000.

-Refer to information for Wexford Co.
Wexford's is comparing the straight-line and double-declining-balance depreciation methods.Of these two methods, which method creates the larger expense and larger tax savings in 2016?

Question

Wexford Co.purchased a new delivery truck at the beginning of 2016.The truck 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 2016.The truck was driven 20,000 miles during 2016 and 24,000 miles during 2017.The number of expected miles over five years is 100,000.
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-Refer to information for Wexford Co. ​
Wexford's is comparing the straight-line and double-declining-balance depreciation methods.Of these two methods, which method creates the larger expense and larger tax savings in 2016?

Quizplus · Accepted Answer

Double-declining-balance depreciation creates both the larger expense and the larger tax savings in the first year of an asset's life because it applies a higher depreciation rate in the early years, leading to a higher expense and thus potentially larger tax savings due to the higher expense deduction.