Question

On January 1, 2018, Trusty Delivery Service purchased a truck at a cost of $75,000. Before placing the truck in service, Trusty spent $3,000 painting it, $600 replacing tires, and $9,400 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, Harvey Warner, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance). Read the requirements. Requirement 1. 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. Straight-Line Depreciation Schedule Requirements Asset Depreciation for the Year Depreciable Useful Depreciation Accumulated Cost Life Expense Depreciation Book Value Cost Date 1-1-2018 12-31-2018 12-31-2019 12-31-2020 12-31-2021 1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value. 2. Trusty prepares financial statements using the depreciation method that reports the highest net income in the early years of asset use. Consider the first year that Trusty uses the truck. Identify the depreciation method that meets the company's objectives. Print Done 12-31-2022 Before completing the units-of-production depreciation schedule, calculate the depreciation expense per unit. Select the formula, then enter the amounts and calculate the depreciation expense per unit. (Round depreciation expense per unit to two decimal places.) )/ J = Depreciation per unit Prepare a depreciation schedule using the units-of-production method. (Enter the depreciation per unit to two decimal places, $X.XX.)

Answer 1

rate positively ..

requirement -1
			Computation of truck cost
			Purchase price =		75000
			Painting		3000
			Tire		600
			Engine		9400
			total cost		88000
			Computation of depreciable value
			Total cost		88000
		Less	Salvage value		10000
			Depreciable value		78000
			Depreciation for the year
	Date	Asset cost	Depreciable cost	Useful life	Depreciation expenses		Accumulated depreciation	Book value
	1-2-2018	88000						88000
	12-31-2018		78000	5	15600		15600	72400
	12-31-2019		78000	5	15600		31200	56800
	12-31-2020		78000	5	15600		46800	41200
	12-31-2021		78000	5	15600		62400	25600
	12-31-2022		78000	5	15600		78000	10000
	Unit of production method
	Computation of depreciation expenses per unit
	Depreciation per unit (mile) = (Total cost - salvage value) / total mile
	Total mile =				120000
	Total cost	Salvage value	Total mile		Depreciation per mile
	88000	10000	120000		0.650
			Depreciation for the year
	Date	Asset cost	Depreciable per unit	Number of unit	Depreciation expenses		Accumulated depreciation	Book value
	1-2-2018	88000						88000
	12-31-2018		0.65	27000	17550		17550	70450
	12-31-2019		0.65	27000	17550		35100	52900
	12-31-2020		0.65	27000	17550		52650	35350
	12-31-2021		0.65	27000	17550		70200	17800
	12-31-2022		0.65	12000	7800		78000	10000
	Double declining method
	Depreciation rate = 2/5			40%
			Depreciation for the year
	Date	Asset cost	Book value	DDB rate	Depreciation expenses		Accumulated depreciation	Book value
	1-2-2018	88000
	12-31-2018		88000	40%	35200		35,200	52,800
	12-31-2019		52800	40%	21120		56,320	31,680
	12-31-2020		31680	40%	12672		68,992	19,008
	12-31-2021		19008	40%	7603		76,595	11,405
	12-31-2022		11405		1405		78,000	10,000
requirement -2	Depreciation method that report highest net income in first year =					Straight line depreciation .
	It produces LOWEST depreciation expenses and therefore the highest net income