Question

(A) Corales Company acquires a delivery truck at a cost of $62,000. The truck is expected to have a salvage value of $17,000 at the end of its 10-year useful life.

Compute annual depreciation expense for the first and second years using the straight-line method.

Annual depreciation expense: Year 1 $____________. Year 2 $____________

(B) Corales Company acquires a delivery truck at a cost of $58,000. The truck is expected to have a salvage value of $6,000 at the end of its 5-year useful life. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.

Annual depreciation expense: Year 1 $____________. Year 2 $____________

(C) Rosco Taxi Service uses the units-of-activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 143,000 miles. Taxi no. 10 cost $40,000 and is expected to have a salvage value of $470. Taxi no. 10 is driven 33,100 miles in year 1 and 21,900 miles in year 2.

Calculate depreciation cost per mile using unit-of-activity method. (Round answer to 2 decimal places, e.g. 0.50.)

(D) On January 1, 2017, the Morgantown Company ledger shows Equipment $45,000 and Accumulated Depreciation―Equipment $9,900. The depreciation resulted from using the straight-line method with a useful life of 12 years and salvage value of $2,500. On this date, the company concludes that the equipment has a remaining useful life of only 4 years with the same salvage value.

Compute the revised annual depreciation.

Answer 1

Ans a Straight Line Depreciation = (Cost - Salvage Value)/Useul Life Straight Line Depreciation = ($62000 - $17000)/10 Straight Line Depreciation = $4500 Annual Depreciation expense Year 1 $4,500 Year 2 $4,500 Ansb Double Declining Balance Method = 2/useful life x Book value Annual Depreciation expense Year 1 (2/5 x $58000] $23,200 Year 1 (2/5 x ($58000-$23200] $13,920 Ansc Unit of Activity Method = (Cost - Salvage Value)/Expected total unit of activity x unit of acitivity per year Unit of Activity Method = ($40000-$470)/143000 Unit of Activity Method = $0.28 per miles Depreciation cost per mile is $0.28 Ans d Revision of salvage value and estimated useful life : If there is a change in the estimate of salvage value or estimated useful life then the effect of such revision in estimates is be considered prospectively i.e. the change in depreciation Expense is be recoded in the year in which depreciation changes and subsequent accounting periods Revised Deprecation Expense = (Cost - Revised Salvage Value - Accumulated Depreciation)/ Revised Remaining Useful life Revised Deprecation Expense = ($45000-$2500-$9900)/4 Revised Deprecation Expense = $8150