Problem 9-2A In recent years, Avery Transportation purchased three used buses. B
ID: 2431924 • Letter: P
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Problem 9-2A In recent years, Avery Transportation purchased three used buses. Because of frequent turnover in the accounting department, a different accountant selected the depreciation method for each bus, and various methods were selected. Information concerning the buses is summarized as follows Salvage Depreciation Useful Life in Years 4 Bus Acquired Value Cost 96,600 123,000 78,100 Method 7,000 12,000 8,500 Straight-line Declining-balance Units-of-activity For the declining-balance method, the company uses the double-declining rate. For the units-of-activity method, total miles are expected to be 116,000. Actual miles of use in the first 3 years were 2016, 26,000; 2017, 36,000; and 2018, 30,500 Your answer is correct. For Bus #3, calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places, e.g. 0.50.) Depreciation expense 0.60 per mile SHOW SOLUTION SHOW ANSWER LINK TO TEXTExplanation / Answer
Accumulated Depreciation on December 17
Bus 1
$ 67,200.00
Bus 2
$ 96,432.00
Bus 3
$ 37,200.00
BUS 1 (Straight Line Method)
A
Cost
$ 96,600.00
B
Residual Value
$ 7,000.00
C=A - B
Depreciable base
$ 89,600.00
D
Life [in years]
4
E=C/D
Annual SLM depreciation
$ 22,400.00
Year
Book Value
Depreciation expense
Ending Book Value
Accumulated Depreciation
2015
$ 96,600.00
$ 22,400.00
$ 74,200.00
$ 22,400.00
2016
$ 74,200.00
$ 22,400.00
$ 51,800.00
$ 44,800.00
2017
$ 51,800.00
$ 22,400.00
$ 29,400.00
$ 67,200.00
2018
$ 29,400.00
$ 22,400.00
$ 7,000.00
$ 89,600.00
Bus 2 (Double declining method)
A
Cost
$ 123,000.00
B
Residual Value
$ 12,000.00
C=A - B
Depreciable base
$ 111,000.00
D
Life [in years]
5
E=C/D
Annual SLM depreciation
$ 22,200.00
F=E/C
SLM Rate
20.00%
G=F x 2
DDB Rate
40.00%
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
2015
$ 123,000.00
40.00%
$ 49,200.00
$ 73,800.00
$ 49,200.00
2016
$ 73,800.00
40.00%
$ 29,520.00
$ 44,280.00
$ 78,720.00
2017
$ 44,280.00
40.00%
$ 17,712.00
$ 26,568.00
$ 96,432.00
Bus 3 (Unit of Activity)
A
Cost
$ 78,100.00
B
Residual Value
$ 8,500.00
C=A - B
Depreciable base
$ 69,600.00
D
Usage
116000
E
Depreciation per Mile
0.60
Year
Book Value
Usage
Depreciation expense
Ending Book Value
Accumulated Depreciation
2016
$ 78,100.00
26000
$ 15,600.00
$ 62,500.00
$ 15,600.00
2017
$ 62,500.00
36000
$ 21,600.00
$ 40,900.00
$ 37,200.00
2018
$ 40,900.00
30500
$ 18,300.00
$ 22,600.00
$ 55,500.00
If Bus 2 Was Purchased on April 1 instead of January 1 then depreciation for 2015 would be charged for 9 months instead of 12 months.
Depreciation for 2015 and 2016 are as follows
Depreciation Expense
2015
2016
$ 36,900.00
$ 34,440.00
Year
Beginning Book Value
Depreciation rate
Depreciation expense
Ending Book Value
Accumulated Depreciation
2015
$ 123,000.00
40.00%
$ 36,900.00*
$ 86,100.00
$ 36,900.00
2016
$ 86,100.00
40.00%
$ 34,440.00
$ 51,660.00
$ 71,340.00
*49200/12*9
Accumulated Depreciation on December 17
Bus 1
$ 67,200.00
Bus 2
$ 96,432.00
Bus 3
$ 37,200.00
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