Question

Delivery Service Express (DSE) has a fleet of trucks and specializes in the delivery of refrigerated foods. The warehouse manager purchased a delivery truck for $240,000. Part of the job of the Chief Financial Officer (CFO) is to depreciate the delivery truck over its estimated useful life. The CFO is considering three depreciation methods: activity-based, straight-line, and double-declining-balance. The CFO has plotted depreciation each year (left graph) using an estimated five-year useful life. The right graph shows the accumulation of depreciation each year for each method. Depreciation Each Year by Method Accumulated Depreciation Each Year by Method $120,000 $250,000 $100,000 $200,000 $200,000 $80,000 $150,000 Method 1 $60,000 $100,000 Method 2 Method 3 $40,000 ---Method 1 $20,000 $50,000 Method 2 Method 3 $0 Year 1 2 3 4 5 Year 1 2 3 4 5 Click here to open the graph(s) in a new tab. Required: Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Req 2B Reg 3 Reg 4 Req 5A Req 5B Which method is depicted by each option: Method 1: Method 2: Method 3: Reg 1 Req 2A >

Which depreciation method results in the most depreciation in the first year of the truck’s five-year useful life?

	Straight-line Activity-base Double-declining-balance They are all equal

Which depreciation method results in the same amount of depreciation each year?

Straight-line

Activity-base

Double-declining-balance

They are all equal

Which depreciation method results in the most accumulated depreciation by the end of the truck’s five-year useful life?

Straight-line

Activity-base

Double-declining-balance

They are all equal

What is the truck’s estimated residual value (Hint: Recall the purchase cost of the truck is $240,000)?

By the end of Year 2, Accumulated Depreciation under Method 1 is $80,000. What would be the reported book value of the truck at that time?

If the CFO instead uses Method 3, Accumulated Depreciation by the end of Year 2 would be $153,600. What would be the reported book value of the truck at the end of Year 2 using Method 3?

Answer 1

Particulars Method Reason Method 1 Straight Line Method Depreciation each year graph is a straight line at $ 40,000 for all years Method 2 Double Declining Method Depreciation each year graph is declining each year Method 3 Activity Based Method Depreciation each year graph is varying every year based on activity

Which depreciation method results in the most depreciation in the first year of the truck's five-year useful life? Double-declining-balance Because in the depreciation year each graph the depreciation for method 3 is the highest in year 1 Which depreciation method results in the same amount of depreciation each year? Straight-line Because in the depreciation year each graph the depreciation for all the years is same by forming a straight line. Which depreciation method results in the most accumulated depreciation by the end of the truck's five-year useful life? They are all equal Because in the accumulated depreciation year each graph, the accumulated depreciation for all the 3 methods are equal. What is the truck's estimated residual value (Hint: Recall the purchase cost of the truck is $240,000)? Purchase price = $240.000 Useful life = 5 years Amount of accumulated depreciation at the end of 5th year = $200.000 Residual Value = Purchase price less accumulated depreciation = $ 40,000 By the end of Year 2, Accumulated Depreciation under Method I is $80,000. What would be the reported book value of the truck at that time? Reported book value at the end of 2nd yr (method 1) = Purchase price less accu. Depreciation at end of year 2 Reported book value at the end of 2nd yr (method 1) = S240,000 - 580,000 = $160,000 if the CFO instead uses Method 3, Accumulated Depreciation by the end of Year 2 would be $153,600. What would be the reported book value of the truck at the end of Year 2 using Method 3? Reported book value at the end of 2nd yr (method 3) = Purchase price less accu. Depreciation at end of year 2 Reported book value at the end of 2nd yr (method 3) = $240,000 - $153,600 Reported book value at the end of 2nd yr (method 3) = $240,000 - $86,400