Question

On January 3, 2018, Speedy Delivery Service purchased a truck at a cost of $67,000. Before placing the truck in service, Speedy spent $3,000 painting it, $1,200 replacing tires, and $3,500 overhauling the engine. The truck should remain in service for five years and have a residual value of $5,100. The truck's annual mileage is expected to be 20,000 miles in each of the first four years and 12,800 miles in the fifth year-92,800 miles in total. In deciding which depreciation method to use, Alec Rivera, 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 Depreciation for the Year Asset Depreciable Useful Depreciation Accumulated Book Date Cost Cost Life Expense Depreciation Value 1-3-2018 12-31-2018 12-31-2019 12-31-2020 12-31-2021 12-31-2022 Choose from any list or enter any umber in the innut fienlds

Answer 1

Requirement 1:

Straight line:

	i					ii	iii	iv = i - iii
		Depreciation for the Year
Date	Asset Cost	Depreciable Cost		Useful Life		Depreciation Expense	Accumulated Depreciation	Book Value
1-32018	$74,700
12-31-2018		$69,600	/	5	=	$13,920	$13,920	$60,780
12-31-2019		$69,600	/	5	=	$13,920	$27,840	$46,860
12-31-2020		$69,600	/	5	=	$13,920	$41,760	$32,940
12-31-2021		$69,600	/	5	=	$13,920	$55,680	$19,020
12-31-2022		$69,600	/	5	=	$13,920	$69,600	$5,100

Units of production:

	i					ii	iii	iv = i - iii
		Depreciation for the Year
Date	Asset Cost	Miles		Depreciable Rate		Depreciation Expense	Accumulated Depreciation	Book Value
1-32018	$74,700
12-31-2018		20,000	x	$0.75	=	$15,000	$15,000	$59,700
12-31-2019		20,000	x	$0.75	=	$15,000	$30,000	$44,700
12-31-2020		20,000	x	$0.75	=	$15,000	$45,000	$29,700
12-31-2021		20,000	x	$0.75	=	$15,000	$60,000	$14,700
12-31-2022		12,800	x	$0.75	=	$9,600	$69,600	$5,100

Depreciation rate = Depreciable cost ÷ Total miles

= $69,600/92,800

=$0.75 per mile

Double-declining-balance:

		i				ii	iii	iv = i - iii
		Depreciation for the Year
Date	Asset Cost	Beginning Book value		Depreciable Rate		Depreciation Expense	Accumulated Depreciation	Ending Book value
1-32018	$74,700
12-31-2018		$74,700	x	40%	=	$29,880	$29,880	$44,820
12-31-2019		$44,820	x	40%	=	$17,928	$47,808	$26,892
12-31-2020		$26,892	x	40%	=	$10,757	$58,565	$16,135
12-31-2021		$16,135	x	40%	=	$6,454	$65,019	$9,681
12-31-2022		$9,681	x	40%	=	$4,581	$69,600	$5,100

Depreciation rate = Straight line rate x 2

= (13,920/69,600 x 100) x 2

= 20% x 2

= 40%

Requirement 2:

Straight line depreciation method meets the company's objective because it has lowest depreciation expense in the first year. If the expense is lower then the net income to be higher.