Question

Depreciation Handout Flextronics Corporation bought a truck on January 1, 2012 for $35,000, Management has estimated that equipment will have a useful life of five years or 120,000 miles. At the end of five years, management believes the truck will be worth $3,000. The actual mileage the truck was driven is as follows: 2012 2013 2014 2015 2016 50,000 miles 40,000 miles 20,000 miles 3,000 miles 9,000 miles Straight line Depreciation Cost - Residual Value (Depreciable Cost) Years Year Depreciation Expense Accumulated Depreciation Book Value 2012 2013 2014 2015 2016 Journal Entries Straight line 2012 2015 2013 2016 2014

Answer 1

Accumulated Depreciation Book Value Ans 1 Straight Line Depreciation Schedule Straight line depreciation = (Initial Cost-Salvage Value) / Estimated useful life Depreciation for the year Year Actual Cost Depreciable Cost Useful Life Depreciation Expense $35,000 2012 $32,000 / $6,400 2013 $25,600 / $6,400 2014 $19,200 / $6,400 2015 $12,800 / $6,400 2016 $6,400 / 1 = $6,400 3 2 = = $6,400 $12,800 $19,200 $25,600 $32,000 $28,600 $22,200 $15,800 $9,400 $3,000 Journal Entry Date Debit Credit Dec 31, 2012 $6,400 $6,400 Dec 31, 2013 $6,400 $6,400 Dec 31, 2014 Account Title Depreciation Expense Accumulated Depreciation - Equipment Depreciation Expense Accumulated Depreciation - Equipment Depreciation Expense Accumulated Depreciation - Equipment Depreciation Expense Accumulated Depreciation - Equipment Depreciation Expense Accumulated Depreciation - Equipment $6,400 $6,400 Dec 31, 2015 $6,400 $6,400 Dec 31, 2016 $6,400 $6,400

Ans 2 Unit of Production depreciation Estimated operate 120000 miles (Initial Cost-Salvage Value) / Estimated units production - Depreciation per unit [($35000-$3000)/120000] = $ 0.27 per miles (A) (C) Depreciation for the year Accumulated Depreciation Year Actual Cost Units Rate Book Value Expense Depreciation (B) (A)-(C) $35,000 2012 50,000.00 x 0.270 = $13,500 $13,500 $21,500 2013 40,000.00 X $0.27 = $10,800 $24,300 $10,700 2014 20,000.00 x $0.27 $5,400 $29,700 $5,300 2015 3,000.00 X $0.27 = $810 $30,510 $4,490 2016 $1,490 $32,000 $3,000 In the year 5, depreciation based on units is $2430, but Depreciation is provided of $1490 to restrict the closing book value to the salvage value of the asset Journal Entry Date Account Title Debit Credit Dec 31, 2012 Depreciation Expense $13,500 Accumulated Depreciation - Equipment $13,500 Dec 31, 2013 Depreciation Expense $10,800 Accumulated Depreciation - Equipment $10,800 Dec 31, 2014 Depreciation Expense $5,400 Accumulated Depreciation - Equipment $5,400 Dec 31, 2015 Depreciation Expense $810 Accumulated Depreciation - Equipment $810 Dec 31, 2016 Depreciation Expense $1,490 Accumulated Depreciation - Equipment $1,490

2015 Ans 3 Double Declining Balance Method (DDBM) = 2/Useful Life* Book Value Depreciation for the year Date Actual Cost Accumulated Depreciation DDB rate Book Value Expense Depreciation $35,000 2012 $35,000 x 0.4 = $14,000 $14,000 $21,000 2013 $21,000 x 0.4 = $8,400 $22,400 $12,600 2014 $12,600 x 0.4 = $5,040 $27,440 $7,560 $7,560 x 0.4 = $3,024 $30,464 $4,536 2016 $1,536 $32,000 $3,000 In the year 5, depreciation based on DDBM is $1814, but Depreciation is provided of $1536 to restrict the closing book value to the salvage value of the asset Journal Entry Date Account Title Debit Credit Dec 31, 2012 Depreciation Expense $14,000 Accumulated Depreciation - Equipment $14,000 Dec 31, 2013 Depreciation Expense $8,400 Accumulated Depreciation - Equipment $8,400 Dec 31, 2014 Depreciation Expense $5,040 Accumulated Depreciation - Equipment $5,040 Dec 31, 2015 Depreciation Expense $3,024 Accumulated Depreciation - Equipment $3,024 Dec 31, 2016 Depreciation Expense $1,536 Accumulated Depreciation - Equipment $1,536