Question - Millar, Inc., purchased a truck to use for deliveries and is attempting to determine how much depreciation expense would be recognized under three different methods. The truck cost $20,000 and is expected to have a value of $4,000 at the end of its five-year life.
The truck is expected to be used at the rate of 10,000 miles in the first year, 20,000 miles in the second and third years, and 15,000 miles in the fourth and fifth years.
a. Determine the amount of depreciation expense that will be recognized under each of the following depreciation methods in the first and second years of the truck's useful life. A full year's depreciation will be recognized in the first year the truck is used.
1. Straight-line.
2. Double-declining-balance.
3. Units-of-output (based on miles).
b. Prepare the plants assets section of the balance sheet at the end of the second year of the asset's useful life under the double-declining-balance method, assuming the truck is the only plant asset owned by Millar, Inc.
c. By which of the three methods is it not possible to determine the actual amount of depreciation expense prior to the end of each year? What uncertainty causes this to be true?