Question

$ 144,000 $ 36,000 Original Cost Estimated Residual Value Estimated Useful Years Estimated Units 50,000 Actual Units: Year 1 5,000 Year 2 9,000 Year 3 11,000 Year 4 12,000 Year 5 10,000 Year 6 8,000 55,000

Answer 1

1)
Straight Line Method (16.67%):
Year	Depreciation	Acc. Dep.	Book Value
0			144000
1	18000	18000	126000
2	18000	36000	108000
3	18000	54000	90000
4	18000	72000	72000
5	18000	90000	54000
6	18000	108000	36000
Double declining balance (33.33% on Book Value)
Year	Depreciation	Acc. Dep.	Book Value
0			144000
1	47995	47995	96005
2	31998	79994	64006
3	21333	101327	42673
4	6673 (balance)	108000	36000
5	0	0	36000
6	0	0	36000
Activity Based : Depreciable value 144000-36000=108000
Estimated units = 50000 units
Year	Units	Depreciation	Acc. Dep.	Book Value
0				144000
1	5000	10800	10800	133200
2	9000	19440	30240	113760
3	11000	23760	54000	90000
4	12000	25920	79920	64080
5	10000	21600	101520	42480
6	8000	6480 (balance)	108000	36000
	straight line	double declining balance	activity based
Depreciation	18000	0	6480
Acc. Depreciation	108000	108000	108000
Book Value	36000	36000	36000
2) Journal Entries in Year 6:
Transaction	General Journal	Debit $	Credit $
a.	Depreciation exp.	18000
	Acc. Depreciation		18000
	(being depreciation exp. on straight line booked)
b.	No entry in double declining balance method
c.	Depreciation exp.	6480
	Acc. Depreciation		6480
	(being depreciation exp. on activity based booked)
3) General conclusion as drawn of the three methods:
The Straight-line method implies that an asset is used evenly over its useful life, therefore the expense is constant each year.