Question

Coyote Manufacturing bought a delivery truck for $50,000 on July 1, 2017. The registration fee for the truck was $4,000. Coyote also spent $2,000 to paint its logo on the truck. Coyote estimated that the useful life would be four years or 200,000 miles and the residual value at the end of the useful life be $3,000. The mileage to be added to this truck during its useful life are

               2017             2018             2019              2020              2021

       30,000        54,000       52,000          44,000       20,000

Instructions:

1. Prepare journal entries for the purchase of the truck on July 1. 2017.
2. Compute depreciation expenses on the truck for the years ending on December 31 of 2017 and 2018     using the following methods;      1) Straight-line method,

2) Activity-based method,

3) Sum-of-the-years'-digit,

4) Double declining method.

3. Coyote sold this truck for $20,000 on January 1, 2019

- Prepare any necessary journal entries for this sale using

1) the sum-of-years-digit method.

2) the double-declining balance method

Answer 1

1	Journal entries:
	Date	Account titles and explanation				Debit	Credit
	2017
	July 1.	Delivery truck		(50000+4000+2000)		56000
		Cash					56000
		(Delivery truck purchased)
2	Depreciation expense
	Straight-line method:
	Depreciation=(Cost-salvage value)/Useful life=(56000-3000)/4=$ 13250
	Truck purchased on July 1,2017
		Depreciation				$
	For 2017	Depreciation for 6 months=13250*1/2				6625
	For 2018					13250
	Activity-based method:
	Depreciation per mileage=(Cost-salvage value)/total mileage in the useful life=(56000-3000)/200000=$ 0.265 per lileage
	Depreciation expense=Cost per mileage*Miles travelled in the respective years
		Depreciation				$
	For 2017	30000*0.265				7950
	For 2018	54000*0.265				14310
	Sum-of-the-year's-digit:
	Useful life=4 years
	Sum of the year's digit=4+3+2+1=10
	Depreciation rate for first year=4/10=0.4=40%
	Depreciation rate for second year=3/10=0.3=30%
	Depreciable cost=Original cost of asset-Salvage value=56000-3000=$ 53000
		Depreciation				$
	For 2017	53000*40%*6/12		(For 6 months)		10600
	For 2018	(53000*40%*6/12)+(53000*30%*6/12)				18550
	Double declining method:
	Depreciation rate=2*(100%/Useful life)=2*(100%/4)=2*25%=50%
	Apply depreciation on original cost of asset for the first year
	Then apply depreciation on book value
	Book value for second year=Original cost-Depreciation for first year=56000-14000=$ 42000
		Depreciation				$
	For 2017	56000*50%*6/12		(For 6 months)		14000
	For 2018	42000*50%				21000
3	Date	Account titles and explanation				Debit	Credit
	2019
	Jan. 1	Cash				20000
		Accumulated depreciation			(10600+18550)	29150
		Loss on sale of delivery truck			(Balancing figure)	6850
		Delivery truck					56000
		(As per sum-of-the-year's-digit method)
	Jan. 1	Cash				20000
		Accumulated depreciation			(14000+21000)	35000
		Loss on sale of delivery truck			(Balancing figure)	1000
		Delivery truck					56000
		(As per double-declining balance method)