On March 2,2017,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 31,2018,will be:
A)$165,000.
B)$330,000.
C)$495,000.
D)$385,000.

Question

Quizplus · Accepted Answer

Using the straight-line depreciation method, the yearly depreciation will be ($550,000 / 5 years) = $110,000 per year. However, since Glen Industries uses half-year convention, the first year's depreciation will only be for 9 months (March - December), which is equivalent to 9/12 or 3/4 of the yearly depreciation. Therefore, the first-year depreciation will be:
($110,000 x 3/4) = $82,500

For the second year (2018), the depreciation will be $110,000 for the full year since there are no fractional periods.

At the end of 2018, the accumulated depreciation will be:
($82,500 + $110,000) = $192,500

The book value of the fleet of automobiles at the end of 2018 will be:
($550,000 - $192,500) = $357,500

Therefore, the best choice is D) $385,000 (closest value).

On March 2,2017,Glen Industries Purchased a Fleet of Automobiles at a Cost