Question

Bennet company uses the allowance method to account for unco

Assume the Mariano Trucking Company purchased a truck to use in its business. The purchase date was January 1, and the price was $55,000. The estimated useful life of the truck was 5 years, and the estimated salvage value was $5,000. The truck was expected to last 100,000 miles, and was driven 12,000 miles the first year, 23,000 miles the second year, 35,000 miles the third year, 20,000 miles the fourth year, and 15,000 miles the fifth year. Using the straight-line method, calculate the depreciation expense for each year. 1. Using the production method, calculate the depreciation expense for each year. 2. 3. Using the double declining balance method, calculate the depreciation expense for each year. llgque 00.212

Answer 1

1.

Straight line Method
Cost of Truck	$ 55,000
Less: Salvage value	$ (5,000)
Depreciable value	$ 50,000
Life of Asset	5 Years
Depreciation per year ($50,000/5)	$ 10,000

2.

Depreciation under DDB Method
Year - a	Net Book value, beginning of year - b	Double declained depreciation - c = b/Life of assets*2	Net book value, End of the year - d = b-c
Year 1	$ 55,000	$                                                      22,000	$     33,000
Year 2	$ 33,000	$                                                      13,200	$     19,800
Year 3	$ 19,800	$                                                        7,920	$     11,880
Year 4	$ 11,880	$                                                        4,752	$        7,128
Year 5	$    7,128	$7,128 - $5,000 = $2,128	$        5,000

3.

Activity Based Method Units of Activity
Cost of Truck	$ 55,000
Less: Salvage value	$ (5,000)
Depreciable value	$ 50,000
Total expected miles	100,000
Depreciation per Mile ($50,000/100,000)	$      0.50
Depreciation for Year 1 (12,000*0.50)	$    6,000
Depreciation for Year 2 (23,000*0.50)	$ 11,500
Depreciation for Year 3 (35,000*0.50)	$ 17,500
Depreciation for Year 4 (20,000*0.50)	$ 10,000
Depreciation for Year 5 (50,000-$6,000-$11,500-$17,500-$10,000)	$    5,000

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