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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          

Method of Depreciation: b) Production Method                                                                                 page 2 of 2

Depreciable amount:

Year                 Annual Depreciation                  Accumulated Depreciation                   Carrying Value

Method of Depreciation: c) Double Declining Balance

Depreciable amount: 33.33%

Year                   Annual Depreciation                Accumulated Depreciation                  Carrying Value

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)

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: 16.67%
Year Annual Depreciation Expense Accumulated Depreciation carrying value Method of Depreciation: b) Production Method page 2 of 2 Depreciable amount:
Year Annual Depreciation Accumulated Depreciation Carrying Value Method of Depreciation: c) Double Declining Balance
Depreciable amount: 33.33%
Year Annual Depreciation Accumulated Depreciation Carrying Value For requirement 2, set up the problem like this:
Year 3 Accumulated Depreciation Method a) Method b) Method c) Item 3) Carrying Value Selling Price Gain/Loss

 


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