Problem: The Pablo Paving Company purchased a new bulldozer for $ 250,500 at the beginning of Year 1. It is estimated that the residual value will be 25,000 and have a useful life of 6 years. The Bulldozer is expected to last 10,000 hours. In year 1 it was used 1,800 hours, in year 2 it was used 2000 hours; year 3, 2,500 hours; 1,500 hours in year 4; 1,200 hours in year 5; and 1,000 hours in year 6.

Required:

1) Compute the annual depreciation and carrying value for the new crane for each of the 6 years under each of the following methods: a) Straight-line, b) production, c) double declining- balance. Round percentage to 2 decimal places (for example, like this: 22.22 %).

2) If the crane is sold for $ 250,000 at the end of year 3, what is the gain/loss under each of the three methods?

3) How does each method affect the firm’s profitability? Please explain this as clearly as possible.

For requirement 1, set up the problem like this:

Method of Depreciation: a) Straight line_________

Depreciable amount: ________________________

Year Annual Depreciation Expense Accumulated Depreciation carrying value

1 ______________________________ _______________ ____________

2 ______________________________ _______________ ____________

3 ______________________________ _______________ ____________

4 ______________________________ _______________ ____________

5 ______________________________ _______________ ____________

6 ______________________________ _______________ ____________

 

 

 

 

 

Method of Depreciation _b) Production Method______ page 2 of 2

Depreciable amount______________________

Year Annual Depreciation Accumulated Depreciation Carrying Value

1 _____________________ ______________________ ____________

2 _____________________ ______________________ _____________

3 _____________________ ______________________ _____________

4 _____________________ ______________________ _____________

5 _____________________ ______________________ ______________

6 _____________________ ______________________ ______________

Method of Depreciation _c) _Double Declining Balance

Depreciable amount _______________________

Year Annual Depreciation Accumulated Depreciation Carrying Value

1 _____________________ _______________________ ______________

2 _____________________ _______________________ ______________

3 ______________________ _______________________ ______________

4 ______________________ _______________________ ______________

5 ______________________ _______________________ ______________

6 ______________________ ______________________ ______________

For requirement 2, set up the problem like this:

Year 3 Accumulated Depreciation Carrying Value Selling Price Gain/Loss

Method a) _________________ ____________ __________ ________

Method b) _____________________ ____________ __________ _________

Method c) _____________________ ____________ ___________ _________

Item 3) ____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

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