Question

On January 2, 2018, Speedy Delivery Service purchased a truck at a cost of $62,000. Before placing the truck in service, Speedy spent $2,200 painting it, $1,500 replacing tires, and $4,300 overhauling the engine. The truck should remain in service for five years and have a residual value f $5,000. The truck's annual mileage is expected to be 28,000 miles in each of the first four years and 18,000 miles in the fifth year—130,000 miles in total. In deciding which depreciation method to use, Mitch Halstrom, 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 1-2-2018 12-31-2018 / 12-31-2019 12-31-2020 12-31-2021 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.) ( Depreciation per unit

Answer 1

70000 Requirement (1) Straight line depreciation schedule : Depreciation for the Year Useful life Depreciation cost Date Asset Cost 1/2/2018 $ 70,000 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 = $ $ $ $ $ $ 65,000 65,000 65,000 65,000 65,000 Depreciation expense Accumulated depreciation Book Value $ 70,000 $ 13,000 $ 13,000 $ 57,000 13,000 $ 26,000 $ 44,000 $ 13,000 $ 39,000 $ 31,000 $ 13,000 $ 52,000 $ 18,000 $ 13,000 $ 65,000 $ 5,000 5 Years 5 Years 5 Years 5 Years 5 Years = = Units of production depreciation schedule : (Asset value - Residual Value) / Total units of production = Depreciation per unit (70000-5000)/130000 = $0.50 Depreciation for the Year Number of Units Depreciation per unit = Date Asset Cost 1/2/2018 $ 70,000 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 $ $ $ $ $ 0.50 0.50 0.50 0.50 0.50 28000 28000 28000 28000 18000 Depreciation expense Accumulated depreciation Book Value $ 70,000 $ 14,000 $ 14,000 $ 56,000 $ 14,000 $ 28,000 $ 42,000 $ 14,000 $ 42,000 $ 28,000 $ 14,000 $ 56,000 $ 14,000 $ 9,000 $ 65,000 $ 5,000 Double declining Balance depreciation schedule : DDB rate 100/5 years *200% = 40% Depreciation for the Year Date Asset Cost Book Value DDB Rate 1/2/2018 $ 70,000 12/31/2018 $ 70,000.00 40% 12/31/2019 42,000.00 40% 12/31/2020 $ 25,200.00 40% 12/31/2021 $ 15,120.00 40% 12/31/2022 $ 9,072.00 S Depreciation expense Accumulated depreciation Book Value $ 70,000 $ 28,000 $ 28,000 $ 42,000 $ 16,800 $ 44,800 $ 25,200 $ 10,080 $ 54,880 $ 15,120 $ 6,048 $ 60,928 $ 9,072 $ 4,072 $ 65,000 5000 = Requirement (2) The depreciation method that reports the higest net income in the first year is straight line method It produces lowest depreciation expense and therefore highest net income Note : Please comment down for any further clarifications