Garns Photography Company purchased a new car on July 1, 2011, for $26,000. The estimated life of

Question:

Garns Photography Company purchased a new car on July 1, 2011, for $26,000. The estimated life of the car was five years or 110,000 miles, and its salvage value was estimated to be $1,000. The car was driven 9,000 miles in 2011 and 24,000 miles in 2012.

1. Compute the amount of depreciation expense for 2011 and 2012 using the following methods:

a. Straight-line

b. Units-of-production

2. Which depreciation method more closely reflects the used-up service potential of the car? Explain.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...