Question

In recent years, Novak Transportation purchased three used buses. Because of frequent turnover in the accounting department, a different accountant selected the depreciation method for each bus, and various methods were selected. Information concerning the buses is summarized as follows.

Bus		Acquired		Cost		Salvage Value		Useful Life in Years		Depreciation Method
1		1/1/18		$ 99,000		$ 5,500		5		Straight-line
2		1/1/18		110,000		10,500		4		Declining-balance
3		1/1/19		89,000		8,500		4		Units-of-activity

For the declining-balance method, the company uses the double-declining rate. For the units-of-activity method, total miles are expected to be 115,000. Actual miles of use in the first 3 years were 2019, 23,000; 2020, 31,000; and 2021, 30,500.

For Bus #3, calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places, e.g. 0.50.)

Depreciation expense

$

per mile

then Compute the amount of accumulated depreciation on each bus at December 31, 2019.

Answer 1

Answer- Depreciation expense per mile under units-of-activity method=$0.70 per mile.

Explanation- Activity based depreciation method:-Annual depreciation expense per unit-

=Cost – salvage /Total miles

=($89000-$8500)/115000 miles

=$0.70 per mile

Answer- The amount of accumulated depreciation on Bus 1 at December 31, 2019 = $18700+$18700

= $37400

Explanation- Straight line Method-

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($99000-$5500)/5 years

=$93500/5 years

= $18700

Annual depreciation expense= $18700  

Answer- The amount of accumulated depreciation on Bus 2 at December 31, 2019 =$27500+$55000

= $82500.

Explanation-

Double Declining balance depreciation is calculated using the following formula=

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/4 = 0.25 = 25%
Declining Balance Rate = 2*25% = 50%

Depreciation for Year 2018 = $110000*50% =55000

Book value at the end of year 2018 = $110000-$55000 =$55000

Depreciation for Year 2019 = $55000*50% = $27500

Answer- The amount of accumulated depreciation on Bus 3 at December 31, 2019 =$16100.

Explanation- Activity based depreciation method:-Annual depreciation expense per unit-

=Cost – salvage /Total miles

=($89000-$8500)/115000 miles

=$0.70 per mile

Depreciation expense in year 2019 = Depreciation expense per mile* Actual miles

=$0.70 per mile*23000 miles

=$16100

                                                 

Answer 2

BUS -1 Cost of Asset 99000 Residual Value 5500 Useful Life Depreciable Asset = Cost - Residual value Depreciable Asset 93500 Depreciation p.a = Depreciable asset / Useful Life Depreciation p.a = 18700 Year 2018 2019 2020 Total Straight line Method Depreciation Accumulated expenses Depreciaton Book value 18,700 $ 18,700$ 80,300 18,700 $ 37,400 $ 61,600 Is 18,700 $ 56,100 $ 42,900 $ 56,100 $ 56,100 $ 42,900

BUS-2 Depreciation rate = ( 1*200 /useful life ) = 50% Double Decline Method Year 2018 2019 2020 Total Book value at Beginning of the year 110,000 55,000 27,500 Depreciation Depreciation rate expenses 50.00% $ 55,000 50.00% $ 27,500 50.00% $ 13,750 $ 96,250 Accumulate d Depreciaton Book value $ 55,000 $ 55,000 $ 82,500 $ 27,500 $ 96,250 $ 13,750 $ 96,250 $ 13,750

BUS -3 Cost of Asset 89000 Residual Value 8500 Total production/hours 115000 Depreciable Asset = Cost - Residual value Depreciable Asset 80500 Depreciation p.u = Depreciable asset / Production units Depreciation p.u = 0.70 Year 2019 2020 2021 Units of Activity Units or Depreciable Depreciation Depreciation Accumulated Hours units Per unit expenses Depreciaton Book value 23000 23000 $ 0.70 $ 16,100 $ 16,100 $ 72,900 31000 31000 $ 0.70 $ 21,700$ 37,800 $ 51,200 30500 30500 $ 0.70 $ 21,350 $ 59,150 $ 29,850 84500 84500$ 0.70 $ 59,150 $ 59,150 $ 29,850 Total