Question

DIG Weygandt, Accounting Principles, 13e Hel System Announcements Exercise 10-07 a1-b2 Pronghorn Company purchased a delivery truck for $26,000 on January 1, 2020. The truck has an expected salvage value of $1,280, and is expected to be driven 103,000 miles over its estimated useful life of 10 years. Actual miles driven were 12,700 in 2020 and 10.200 in 2021. Calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places. e.. 0.50.) Depreciation expense S per mile SHOW LIST OF ACCOUNTS LINK TO TEXT Compute depreciation expense for 2020 and 2021 using (1) the straight-line method, (2) the units of activity method, and (3) the double-declining-balance method. (Round depreciation cost per unit to 2 decimal places, e.o. 0.50 and depreciation rate to o decimal places, e.g. 15%. Round final answers to O decimal places, 0.0.2.125.) Depreciation Expense 2020 2021 (1) Straight-line method (2) Units-of-activity method (3) Declining balance method SHOW LIST OF ACCOUNTS LINK TO TEXT SPM 0 A6 2120 = a H Ệ

Answer 1

1. Under the straight line method, depreciation is calculated by the following formula:

Depreciation = Cost - Salvage value / Useful life

Cost = $26000, Salvage value = $1280, useful life = 10

Depreciation = ($26000 - $1280) / 10 = $2472

Under straight line method, depreciation remains the same for every year. So depreciation for 2020 and 2021 will be same i.e. $2472

2. Under units of activity method, first we will calculate the depreciation per mile and then we will calculate the depreciation expense.

Depreciation per mile = Cost - Salvage value / Estimated miles

Estimated miles = 103000

Depreciation per mile = ($26000 - $1280) / 103000 = $24720 / 103000 = $0.24 per mile

In the next step, we will compute the depreciation expense as per below:

Depreciation expense = Depreciation per mile * Miles run

Depreciation for 2020 :

Miles run in 2020 was 12700, so

Depreciation for 2020 = $0.24 * 12700 = $3048

Depreciation for 2021:

Miles run in 2021 was 10200, so

Depreciation for 2021 = $0.24 * 10200 = $2448

3. Under double declining balance method, depreciation is calculated by the following formula:

Depreciation = 2 * 1 / N * (Cost - Accumulated depreciation)

where, n is the no. of years or useful life and accumulated depreciation is depreciation charged till date

For first year i.e. 2020, accumulated depreciation will be zero.

So, depreciation for first year 2020 will be:

Depreciation for 2020 = 2 * 1 / 10 * ($26000 - 0)

Depreciation = 2 * 1 / 10 * $26000 = $5200

Now, in 2021, accumulated depreciation will be $5200 (i.e. depreciation charged till date is depreciation for 2020)

Depreciation for 2021 will be:

Depreciation = 2 * 1 / 10 * ($26000 - $5200) = 2 * 1 / 10 * $20800 = $4160

Assuming straight line method, journal entry to record the depreciation for 2020 is:

Date	Account titles	Debit	Credit
Dec 31 2020	Depreciation expense	$2472
	Accumulated depreciation		$2472
	(for depreciation for 2020)

In 2020, using straight line method, Truck will be reported in the Property, Plant & Equipment section of non current assets as per below:

Description	Amount
Assets:
Property, Plant & Equipment
Trucks	$26000
Less: Accumulated depreciation	($2472)
Net Trucks	$23528