Depreciation Under Different Methods
On January 1, 2005, 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 2008. A full year’s depreciation was taken in 2005, the year of acquisition.
Instructions: Compute depreciation expense for 2008 under each of the following methods:
1. Straight line
2. Double declining balance
3. Sum of the years’ digits
4. Service hours