On January 3, 2018, Brisk Delivery Service purchased a truck at a cost of $75,00

Question

On January 3, 2018, Brisk Delivery Service purchased a truck at a cost of $75,000 Before placing the truck in service, Brisk spent $4,000 painting it, $2,500 replacing tires, and S6,500 overhauling the engine. The truck should remain in service for five years and have a residual value of $10,000. The truck's annual mileage is expected to be 27,000 miles in each of the first four years and 12,000 mies in the fifth year-120,000 miles in total. In deciding which depreciation method to use, Harvey Warner, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance). Read the requirements. Requirement 1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value. Begin by preparing a depreciation schedule using the straight-line method. Straight-Line Depreciation Schedule Depreciation for the Year AssetDepreciable Depreciation Depreciation Accumulated Boolk Date Cost Cost Rate Expense Depreciation Value 1-3-2018 12-31-2018 12-31-2019 12-31-2020 12-31-2021 12-31-2022

Explanation / Answer

The depreciation method that reports the highest net income for the first year is the Straight Line Method. It produces the lowest depreciation expense and hence the highest net income.

Straight-line-depreciation Date Depreciation for the year Asset cost Depreciable cost Depreciation rate Depreciation Expense Acumulated Depreciation Book Value 1-03-2018 88000 12-31-2018 78000 20% 13000 13000 75000 12-31-2019 78000 20% 15600 28600 59400 12-31-2020 78000 20% 15600 44200 43800 12-31-2021 78000 20% 15600 59800 28200 12-31-2022 78000 20% 15600 75400 12600

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