Depreciation and Depletion Problems
Kent Farms purchases a tractor for $26,500. It is estimated that the tractor will have a $2,500 trade-in value at the end of the useful life, which is estimated to be five years.
Kent Farms purchases a tractor for $26,500. It is estimated that the tractor will have a $2,500 trade-in value at the end of the useful life, which is estimated to be five years.
a.) Under the straight line method, what would be the depreciation charge per year?
Cost:
Trade-in:
Amount to Depreciate:
Divided by 5 years:
b.) Suppose instead that the useful life is estimated to be 30,000 total service hours. The actual number of hours expected to be spent in operation for each year is as follows:
| 1st year: | 5,500 | hours | ||
| 2nd year: | 7,400 | hours | ||
| 3rd year: | 6,200 | hours | ||
| 4th year: | 5,800 | hours | ||
| 5th year: | 5,100 | hours | total |
Use the service hours method to find the depreciation charges and net book value for each year. Construct a depreciation schedule for the life of the tractor similar to that of problem 1 (insert rows to fit). Assume that the cost and trade-in value are the same as above.
| Amount to depreciate: | 24000 | |||
| Beginning NBV | Charge | Ending NBV | ||
| 1 | 26500 | |||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| 5 | ||||
