On January 2, 20XX, Bellwether Garden Supply purchased a delivery truck for $50,

Question

On January 2, 20XX, Bellwether Garden Supply purchased a delivery truck for $50,000. The estimated useful life of the truck is 5 years, with an estimated salvage value of $5,000. The truck is expected to be driven 250,000 miles during its useful life. Part A. Compute the amount of depreciation expense that the company will recognize in a year in which the truck is driven 80,000 miles, assuming the company uses the units-of-production method. Part B. Compute the book value of the asset at the end of the Third year, assuming the company uses the straight-line method. Part C. Determine the balance in the Accumulated Depreciation account at the end of the Second year that it owns the asset, assuming the company uses the double-declining-balance method.

Explanation / Answer

Part A:

Depreciation expense=($50,000-$5,000)*80,000/250,000=$14,400

Part B:

the book value of the asset at the end of the Third year=$45,000*2/5=$18,000

Part C:

The depreciation for the first year of its life using double declining balance method.

Straight-line Depreciation Rate = 1 ÷ 5 = 0.2 = 20%
Declining Balance Rate = 2 × 20% = 40%
Depreciation = 40% × $50,000 = $20,000

the depreciation of the asset for the second year of its life.

Declining Balance Rate = 40%
Book Value = Cost Accumulated Depreciation = $50,000 $20,000 = $30,000
Depreciation = 40% × $30,000 = $12,000

Accumulated Depreciation account at the end of the Second year=$20,000+$12,000=$32,000

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