Straight-Line, Declining-Balance, and Sum-of-the-Years'-Digits Methods A light truck is purchased on January 1 at a cost of $38,730. It is expected to serve for eight years and have a salvage valu...
Straight-Line, Declining-Balance, and Sum-of-the-Years'-Digits Methods
A light truck is purchased on January 1 at a cost of $38,730. It is expected to serve for eight years and have a salvage value of $5,690. Calculate the depreciation expense for the first and third years of the truck’s life using the following methods. If required, round your answers to the nearest cent.
| Depreciation Expense | ||
| Year 1 | Year 3 | |
| 1. Straight-line | $ | $ |
| 2. Double-declining-balance | $ | $ |
| 3. Sum-of-the-years'-digits | $ | $ |
Homework Answers
| Depreciation Expense | ||
| Year 1 | Year 3 | |
| 1. Straight-line | $4,130 | $ 4,130 |
| 2. Double-declining-balance | $ 9,682.50 | $ 5446.41 |
| 3. Sum-of-the-years'-digits | $7342.22 | $ 5506.67 |
Working
| Straight line Method | ||
| A | Cost | $ 38,730.00 |
| B | Residual Value | $ 5,690.00 |
| C=A - B | Depreciable base | $ 33,040.00 |
| D | Life [in years left ] | 8 |
| E=C/D | Annual SLM depreciation | $ 4,130.00 |
| Depreciation schedule-Straight line method | ||||
| Year | Book Value | Depreciation expense | Accumulated Depreciation | Ending Book Value |
| 1 | $ 38,730.00 | $ 4,130.00 | $ 4,130.00 | $ 34,600.00 |
| 2 | $ 34,600.00 | $ 4,130.00 | $ 8,260.00 | $ 30,470.00 |
| 3 | $ 30,470.00 | $ 4,130.00 | $ 12,390.00 | $ 26,340.00 |
| Double declining Method | ||
| A | Cost | $ 38,730.00 |
| B | Residual Value | $ 5,690.00 |
| C=A - B | Depreciable base | $ 33,040.00 |
| D | Life [in years] | 8 |
| E=C/D | Annual SLM depreciation | $ 4,130.00 |
| F=E/C | SLM Rate | 12.50% |
| G=F x 2 | DDB Rate | 25.00% |
| Depreciation schedule-Double declining | |||||
| Year | Beginning Book Value | Depreciation rate | Depreciation expense | Accumulated Depreciation | Ending Book Value |
| 1 | $ 38,730.00 | 25.00% | $ 9,682.50 | $ 9,682.50 | $ 29,047.50 |
| 2 | $ 29,047.50 | 25.00% | $ 7,261.88 | $ 16,944.38 | $ 21,785.63 |
| 3 | $ 21,785.63 | 25.00% | $ 5,446.41 | $ 22,390.78 | $ 16,339.22 |
| Sum-of-the-Years'-Digits Method | ||
| A | Cost | $ 38,730.00 |
| B | Residual Value | $ 5,690.00 |
| C=A - B | Depreciable base | $ 33,040.00 |
| Sum of digits with 5 years (8+7+6+5+4+3+2+1) | 36 | |
| Year | Depreciable base | Formula | Depreciation expense | ||
| 1 | $ 33,040.00 | (([33040x8/36]/) | $ 7,342.22 | ||
| 2 | $ 33,040.00 | (([33040x7/36]/) | $ 6,424.44 | ||
| 3 | $ 33,040.00 | (([33040x6/36]/) | $ 5,506.67 |
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