Computation of Depreciation Expense
Lyman Construction purchased a concrete mixer on July 15, 2008. Company officials revealed the following information regarding this asset and its acquisition:
|
Purchase price |
$175,000 |
|
Residual value |
$15,000 |
|
Estimated useful life |
12 years |
|
Estimated service hours |
40,000 |
|
Estimated production in units |
350,000 yards |
The concrete mixer was operated by construction crews in 2008 for a total of 4,500 hours, and it produced 41,000 yards of concrete. It is company policy to take a half year’s depreciation on all assets for which it used the straight line or double declining balance depreciation method in the year of purchase. Calculate the resulting depreciation expense for 2008 under each of the following methods, and specify which method allows the greatest depreciation expense.
1. Double declining balance
2. Productive output
3. Service hours
4. Straight line