On March 2, 2009, Glen Industries purchased a fleet of automobiles at a cost of $550,000. The cars are to be depreciated by the straight-line method over five years with no salvage value. Glen uses the half-year convention to compute depreciation for fractional periods. The book value of the fleet of automobiles at December 31, 2010, will be:
A) $165,000.
B) $400,000.
C) $495,000.
D) $385,000.

Question

Quizplus · Accepted Answer

Using the straight-line method over five years, the annual depreciation is $550,000 ÷ 5 = $110,000. Applying the half-year convention, the first year's depreciation is $55,000 (half of $110,000). For the second year, the depreciation is also $55,000. Therefore, the book value at December 31, 2010, will be $550,000 – $110,000 – $55,000 – $55,000 = $330,000.

On March 2, 2009, Glen Industries Purchased a Fleet of Automobiles