Question

Financial Accounting Students Please are shaded in areas that Exercise 7-19, 2, 3 Determining depreciation amounts by three methods Student Name Course Name Student ID Date supmore Bournes Uttle Caesar's Pizza bought a used Nissan delivery van on ianuary 2, 20x1, for $15.000 The van was expected to remain in service 4 years (100,000 miles). At the end of its useful life. Uttle Caesar's officials estimated that the van's residual value will be $3,000. The van traveled 34,000 miles the first year 2.000 the second year, 18.000 the third year, and 20,000 in the fourth year. Prepare a schedule of depreciation expense per year for the van under the 3 depreciation methods. Show your computations. (pp. 375-378) Which method best tracks the wear and tear on the van? Which method would Little Caesar's prefer to use for income tax purposes? Explain in detail why Little Caesar's prefers this method. p. 381) Test Your Knowledge Exercise 7.19 Instructions Show answers below, but explain how you arrived at them in the space provided. Straight- Double Declining Units-of- Production 20x1 20X2 20x3 20x4 Show Computations Straight Line Computation Units-of-productions Computations: Exercise 7-19 Double-declining balance Computations: Which method best tracks the wear and tear on the van? Select from list Select from list which method for income tax purposes? Why? Enter explanation here.

Answer 1

Answer is given below

For Double Declining method the depreciation calculation is stopped in 20X3 so that residual value can be maintained.

1. Depreciation Expense Year Straight Line Units of Production Double Declining Balance $7,500 $3,750 $750 20X1 20X2 20X3 20X4 Totals $3,000 $3,000 $3,000 $3,000 $12,000 $4,080 $3,360 $2,160 $2,400 $12,000 $12,000 The best methods to track depreciation is Units of Production method For Income tax purpose double declining balance method can be used since Depreciation charge is higher and lower income tax can be paid on income Calculations Straight Line method Cost Residual value Years Yearly Depreciation $15,000 $3,000 Units of Production Method Cost Total Miles Rate Residual value $3,000 $15,000 100,000 $0.12 Year Rate Miles Yearly Depreciation $0.12 20X1 20x2 20x3 20X4 $0.12 $0.12 34,000 28,000 18,000 20,000 $4,080 $3,360 $2,160 $2,400 $0.12 Double declining balance method Year Opening Balance Rate Yearly Depreciation 20X1 20X2 20x3* 20X4 $15,000 $7,500 $3,750 50.00% 50.00% 50.00% $7,500 $3,750 $750 20x3 Depreciation will be $750 to keep Residual value as balance Double Declining method working number of years useful Depreciation rate of assets (1/number of years) 25.00% Double Declining depreciation rate 50.00%