On October 1, 2014, Welch Auto Rentals Purchases a New

Essay

On October 1, 2014, Welch Auto Rentals purchases a new automobile for $30,000 to add to its fleet of rental cars. The automobiles are rented out on a short-term basis with rental fees calculated based on distance driven by the customer. Welch's policy is to sell and replace a car after the earlier of 3 years, or 75,000 kilometers. The average selling price of the used cars is $8,000. This particular car was driven 8,000 km in 2014, 39,000 in 2015 and 21,000 in 2016.
Instructions
a. Calculate 2014 and 2015 depreciation expense under each of the following methods:
(i) Straight-line
(ii) Diminishing-balance using a 40% rate.
(iii) Units-of-production
b. Which method will best match the estimated pattern in which the asset's economic benefits are expected to be consumed? Explain.