Falling Leaves Lawn Care
This company purchased new excavating equipment at the beginning of Year 1. The equipment has a cost of $37,000, an estimated life of five years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in Year 1. The equipment was used 20,000 hours during Year 1 and 24,000 hours during Year 2. The number of expected hours over five years is 100,000.
-Refer to the figure Falling Leaves Lawn Care.The company wants to use the depreciation method that will result in the highest depreciation expense for Year 1.Which method should it use?

Question

Quizplus · Accepted Answer

The double-declining-balance method will result in the highest depreciation expense in Year 1 since this method accelerates depreciation in the early years of an asset's life. This is because the depreciation is calculated as a percentage of the remaining value of the asset, so in the early years when the asset has a higher value, the depreciation expense will be greater.