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Question - NewCar Company is a car rental center located in Orlando, Florida owned by Norm Peterson. Norm purchased the newest model sedan for $35,000 to add to his fleet of vehicles. The car is expected to be used for five years and have a salvage value of $2,000 at the end of its useful life. Because individuals looking to rent a car prefer the newest model as opposed to the older versions, Norm expects to rent the car more in the earlier years than in the later years. For that reason, he proposes NewCar Company depreciate the vehicle using an accelerated method. Norm opts to use the double-declining method of depreciation.
Required -
A. What is the justification in accounting for using an accelerated depreciation method?
B. Compute the amount of depreciation expense for each of the five years using double-declining method.
C. Why is the amount of depreciation taken in the last year different than the amount computed using the formula provided?
Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $4,000 for the truck.
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