Question

B15 A B с D E10.7 Linton Company purchased a delivery truck for $34,000 on January 1, 2017. The truck has an expected salvage value of $2,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2017 and 12,000 in 1 2018 2 Instructions (a) Compute the depreciation expense for 2017 and 2018 using (show your computations below; insert lines as necessary): 3 4 (1) the straight line method (hint: look up class exercise): 5 6 7 8 9 (2) the units-of-activity method (hint: look up class exercise): 10 11 12 13 (3) the double-declining balance method (hint: look up class exercise). 14 15 16 17 (b) Assume that Linton uses the straight-line method. 18 (1) Prepare the journal entry to record 2017 depreciation. 19 20 Account (cuenta) Debit Credit 21 22 22 24

Answer 1

Solution

Linton Company

a. Computation of the depreciation expense for 2017 and 2018 using –

1 Straight line 2 Units-of-Activity Double Declining 3 Balance 2017 $4,000 $4,800 2018 $4,000 $3,840 $8,500 $6,375

Computations:

1. Straight line method:

Depreciation expense = depreciable base x 1/useful life

Depreciable base = cost – salvage value

Cost = $34,000

Salvage value = $2,000

Useful life = 8 years

Depreciable base = 34,000 – 2,000 = $32,000

Annual depreciation expense = 32,000 x 1/8 = $4,000

The depreciation expense computed under the straight line method would remain constant throughout the useful life of the asset. Hence, the annual depreciation expense for years 2017 and 2018 would be same $4,000.

2. Units of activity method –

Depreciation expense = depreciation rate per mile x miles driven in a year

Depreciation rate per mile = (depreciable base/estimated miles)

Depreciable base = cost – salvage value

Depreciable base = 34,000 – 2,000 = $32,000

Estimated miles = 100,000

Depreciable base = $32,000/100,000 = $0.32 per mile

Depreciation expense in year 2017 –

Miles driven in 2017 = 15,000

Depreciation expense in 2017 = $0.32 x 15,000 = $4,800

Depreciation expense in 2018 –

Miles driven in 2018 = 12,000

Depreciation expense = $0.32 x 12,000 = $3,840

3. Double declining method:

Depreciation expense = cost x depreciation rate

Deprecation rate = 200% x 1/estimated life

= 200% x 1/8 = 25%

Depreciation expense in 2017 –

= cost x depreciation rate

= $34,000 x 25% = $8,500

Book value = cost – accumulated depreciation

= 34,000 – 8,500

= $25,500

Depreciation expense in 2018 –

= book value x depreciation rate

= 25,500 x 25% = $6,375

a. Assuming straight line method –

Journal entry (straight line)

Credit Date Dec 31, 2017 Account Titles and Explanation Debit Depreciation Expense - Delivery Truck $4,000 Accumulated Depreciation - Delivery Truck (To record depreciation expense for 2017) $4,000

Truck to be reported in balance sheet at December 31, 2017 –