On January 1, 2008, Ron Shelley purchased a new tractor to use on his farm. The tractor cost $100,000. Ron also had the dealer install a front-end loader on the tractor. The cost of the front-end loader was $7,000. The shipping charges were $600, and the cost to install the loader was $800. The estimated life of the tractor was eight years, and the estimated service-hour life of the tractor was 12,500 hours. Ron estimated that he could sell the tractor for $15,000 at the end of eight years or 12,500 hours. The tractor was used for 1,725 hours in 2011. A full year's depreciation was taken in 2008, the year of acquisition.

Compute depreciation expense for 2011 under each of the following methods

1) straight line :

2)Double-declining-balance

3)Sum-of-the-years'-digits

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## Answers & Comments

Straight line method- Original Cost-residual value/number of years. So I'm guessing 15000 is youre residual cost because that's what he wants to sell it four at the end of the 8 years.

100,000-15000=85000/8=10625

So each year it depreciates $10625 according to the straight line method.

Double declining- You do the same thing that you did in the straight line method to find how much it depreciates annually.Then you subtract the original cost from the residual value and divide you're annual depreciation by that number.

100,000-15000=85000 10625/85000= .13 or 13 percent. Now double that percentage. 26 percent.

Once you have that you multiply $85,000 by 26 percent to find how much it depreciates in the first year. Then, you multiply 26 percent by the remaining amount. And so one.

The last one I've never heard of. Im not dead on positive about my answers. Im just assuming that $15,000 is the residual value.