Question

Help ! Required information 3 (The following information applies to the questions displayed below.) University Car Wash built a deluxe car wash across the street from campus. The new machines cost $210,000 including installation. The company estimates that the equipment will have a residual value of $19,500. University Car Wash also estimates it will use the machine for six years or about 12,500 total hours. Actual use per year was as follows: ok << Year 1 2 3 4 5 6 Hours Used 3,100 1,100 1,200 2,800 2,600 1,700 2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.) UNIVERSITY CAR WASH Depreciation Schedule-Double-Declining-Balance End of year amounts Depreciation Accumulated Book Value Expense Depreciation Year 18 < Prey 19 of 19 Svext > W Р Х 24 MacBook Pro

Answer 1

Answer

UNIVERSITY CAR WASH
Depreciation Schedule Double Declining Balance
End of Year Amounts
Year	Depreciation Expense	Accumulated Depreciation	Book Value
1	$70,000	$70,000	$140,000
2	$46,667	$116,667	$93,333
3	$31,111	$147,778	$62,222
4	$20,741	$168,519	$41,481
5	$13,827	$182,346	$27,654
6	$8,154	$190,500	$19,500

EXPLANATION

Rate of Depreciation as per Double Declining Balance method = (100 / Life of Machine) * 2

= (100/6) * 2

= 33.333333333333%

Cost of Machine = $210,000

Depreciation for Year 1= Book Value at beginning of Year 1 * Depreciation Rate

Depreciation for Year 1 = $210,000 * 33.333333333333%

= $70,000

Book Value at End of Year 1 = Book Value at Beginning of Year 1 - Depreciation Expense for Year 1

= $210,000 - $70,000

= $140,000

Accumulated Depreciation for Year 1 = $70,000

Depreciation Expense for Year 2 = Book Value of Machine at the End of Year 1 * Depreciation Rate

= $140,000 * 33.333333333333%

= $46,667

Book Value at the End of Year 2 = Book Value at the End of Year 1 (i.e book value of Machine at beginning of Year 2) - Depreciation Expense for Year 2

= $140,000 - $46,667

= $93,333

Accumulated Depreciation at end of year 2 = Depreciation Expense for year 1 + Depreciation Expense for Year 2

= $70,000 + $46,667

= $116,667

Depreciation Expense for year 3 = Book value of machine at the end of year 2 * Depreciation Rate
= $93,333 * 33.333333333333%
= $31,111
Book Value at the end of year 3 = Book value at the end of year 2 (i.e. book value of machine at the beginning of year 3) - Depreciation expense for year 3
= $93,333 - $31,111
= $62,222
Accumulated Depreciation at the end of year 3 = Accumulated Depreciation at the end of year 2 + Depreciation Expense for year 3
= $116,667 + $31,111
= $147,778

Depreciation Expense for year 4 = Book value of machine at the end of year 3 * Depreciation Rate
= $62,222 * 33.333333333333%
= $20,741
Book Value at the end of year 4 = Book value at the end of year 3 (i.e. book value of machine at the beginning of year 4) - Depreciation expense for year 4
= $62,222 - $20,741
= $41,481
Accumulated Depreciation at the end of year 4 = Accumulated Depreciation at the end of year 3 + Depreciation Expense for year 4
= $147,778 + $20,741
= $168,519

Depreciation Expense for year 5= Book value of machine at the end of year 4 * Depreciation Rate
= $41,481 * 33.333333333333%
= $13,827
Book Value at the end of year 5 = Book value at the end of year 4 (i.e. book value of machine at the beginning of year 5) - Depreciation expense for year 5
= $41,481 - $13,827
= $27,654
Accumulated Depreciation at the end of year 5 = Accumulated Depreciation at the end of year 4 + Depreciation Expense for year 5
= $168,519 + $13,827
= $182,346

Depreciation @ 33.33333333% -

Depreciation Expense for Year 6 = $27,654 * 33.3333333%

= $18,436

Book value at end of Year 6 = $27,654 - $18,436

= $9,218

Since the book value at the end of Year 6 can't be less than the residual value as per ddb method.

Here, the book value at end of year 6 @33.3333333% is $9,218 which is less than the residual value i.e. $19,500.

Therefore, depreciation that will be charged for Year 6 = Book Value at the end of year 5 - Residual Value

= $27,654 - $19,500

= $8,154

Rate of Depreciation actually charged for year 6 = (Depreciation Expense for year 6 / Book Value at the end of year 5) * 100

= ($8,154 / $27,654) * 100

= 29.4857886743%

Accumulated Depreciation at the end of Year 6 = Accumulated Depreciation at the end of Year 5 + Depreciation Expense for Year 6

= $182,346 + $8,154

= $190,500

Book Value at End of Year 6 = $27,654 - $8,154

= $19,500

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