Question

On January 1, 2018, Brisk Delivery Service purchased a truck at a cost of $75,000. Before placing the truck in service, Brisk spent $3,000 painting it. $1,200 replacing tires, and $8,800 overhauling the engine. The truck should remain in service for five years and have a residual value of $10,000. The truck's annual mileage is expected to be 27,000 miles in each of the first four years and 12,000 miles in the fifth year-120,000 miles in total. In deciding which depreciation method to use, Alec Rivera, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining balance). Read the resuirements Requirement. Prepare a depreciation schedule for each depreciation method, showing asset cost depreciation expense, accumulated depreciation, and asset book value. Begin by preparing a depreciation schedule using the straight-line method. Book Accumulated Depreciation Value Straight-Line Depreciation Schedule Depreciation for the Year Depreciable Useful Depreciation Date Cost Cost Life Expense 1-1-2018 12-31-2018 12-31-2019 12-31-2020 12-31-2021 12-31-2022

Answer 1

Straight line Depreciation = (Original Cost - Salvage Value) / Useful Life
Original Cost = $75000 +3000 + 1200 +8800 = $88000

		Depreciation for the year
Date	Asset Cost	Depreciable Cost		Useful Life		Depreciation Expense	Accumulated Depreciation	Book Value
01-01-18	$   88,000							$      88,000
12-31-18		$            78,000	/	5	=	$             15,600	$           15,600	$      72,400
12-31-19		$            62,400	/	4	=	$             15,600	$           31,200	$      56,800
12-31-20		$            46,800	/	3	=	$             15,600	$           46,800	$      41,200
12-31-21		$            31,200	/	2	=	$             15,600	$           62,400	$      25,600
12-31-22		$            15,600	/	1	=	$             15,600	$           78,000	$      10,000

Units of production method = (Original Cost - Salvage Value) / Total Capacity x Units produced in year
= ($88000 - $10000) / 120000 = $0.65 per mile

		Depreciation for the year
Date	Asset Cost	Miles Driven		Depreciation per mile		Depreciation Expense	Accumulated Depreciation	Book Value
01-01-18	$   88,000							$      88,000
12-31-18		27000	x	$                0.65	=	$             17,550	$           17,550	$      70,450
12-31-19		27000	x	$                0.65	=	$             17,550	$           35,100	$      52,900
12-31-20		27000	x	$                0.65	=	$             17,550	$           52,650	$      35,350
12-31-21		27000	x	$                0.65	=	$             17,550	$           70,200	$      17,800
12-31-22		12000	x	$                0.65	=	$                7,800	$           78,000	$      10,000

Double Balance Depreciation = Beginning Book Value x 2 times straight line rate
Straight line rate = 1/5 x 100 = 20%

Date	Beginning Value	Depreciation rate	Depreciation Expense	Accumulated Depreciation	Book Value
12-31-18	$   88,000	40%	$                              35,200	$           35,200	$              52,800
12-31-19	$   52,800	40%	$                              21,120	$           56,320	$              31,680
12-31-20	$   31,680	40%	$                              12,672	$           68,992	$              19,008
12-31-21	$   19,008	40%	$                                7,603	$           76,595	$              11,405
12-31-22	$   11,405	40%	$                                1,405	$           78,000	$              10,000

Maximum Depreciation is such that, book value doesnot fall below salvage value

2.
Answer is Straight line method.
Since this method gives lowest depreciation expense for year 1, hence it will report highest net income for the year.