Question

11:29 7 ( Back Module 6: Critical Thinking Two Brother's Moving Company purchased a group of new moving trucks for a total amount of $125,000. The vehicles are expected to last five years due to the heavy use and have a residual/scrap/salvage value of $10,000 at the end of that life. Usage of the vehicle is tracked in miles and the vehicles in total are expected to last 2,000,000 miles. During year one 750,000 miles were used, during year two 600,000 miles were used, during year three 500,000 miles were used, during year four no miles were used due to a temporary closing of the moving line of business, and during year five 150,000 miles were used. Using the depreciation template provided, determine the amount of depreciation expense for the third year under each of the following assumptions: a. The company uses the straight-line method of depreciation. b. The company uses the units-of- production method of depreciation.

Answer 1

Under Straight Line Method Cost Price of Truck Less Salvage Value Depreciable Value (A) Number of Years of Life (B) Depreciation Amount (A/B) 125,000 (10,000) 115,000 23,000 Year Beginning Value Depreciation Expense Accumulated Depreciation (A) (B) 125,000 23,000 23,000 102,000 23,000 46,000 79,000 23,000 69,000 56,000 23,000 92,000 33,000 23,000 115,000 Book Value (A-B) 102,000 79,000 56,000 33,000 10,000 Depreciation expense for third year is $23000 58 Under Units of Production Method 59 60 62 Cost Price of Truck Less Salvage Value Depreciable Value (A) Total Miles (B) Depreciation Amount (A/B) 125,000 (10,000) 115,000 2000000 0.06 Per Mile 63 64

Year Beginning Value Accumulated Depreciation 125,000 81,875 47,375 18,625 18,625 Number of Miles (A) 750,000 600,000 500,000 Depreciation Expense per Mile (B) 0.06 0.06 0.06 0.06 0.06 Total Depreciation Expense (A*B) 43,125 34,500 28,750 43,125 77,625 106,375 106,375 115,000 Book Value (A -B) 81,875 47,375 18,625 18,625 10,000 150,000 8,625 Depreciation expense for third year is $28750 Under Double-declining Method 18 8 8 REAREARERRSE 8 3 3 2 2 6 8 8 8 Rate = 100 % *2 Rate = 40.00% Year Rate (B) Beginning Value (A) 125,000 75,000 45,000 27,000 16,200 40.00% 40.00% 40.00% 40.00% 40.00% Annual Depreciation Expense Accumulated Deprecia (A *B) = (C) 50,000 50,000 30,000 80,000 18,000 98,000 10,800 108.800 6,200 115,000 Book Value (A-C) 75,000 45,000 27,000 16,200 10,000

92 Depreciation expense for third year is $18000 Date Account title & explanation Debit Credit 96 3rd Year Depreciation Expense - Truck 23,000 97 Accumulated Depreciation -Truck 23,000 98 (To record depreciation expense) 99 2 As nothing is given under which method the entry for sale has to be passed 101 I am passing Journal entries under all the three methods. 100 102 Credit 103 Under Straight Line Method 104 105 Date Account title & explanation 106 4th Year Cash 107 Accumulated Depreciation 108 Gain on sale of Truck 109 Truck 110 (To record sale of Truck) Debit 50,000 92,000 17,000 125,000 111

Credit Debit 50,000 106,375 31,375 125,000 118 119 112 Under Units of Production Method 113 114 Date Account title & explanation 115 4th Year Cash 116 Accumulated Depreciation 117 Gain on sale of Truck Truck (To record sale of Truck) 120 121 Under Double-declining Method 122 123 Date Account title & explanation 124 4th Year Cash 125 Accumulated Depreciation 126 Gain on sale of Truck 127 Truck 128 (To record sale of Truck) Credit Debit 50,000 108,800 33,800 125000