Company purchases a delivery van for $32,000. Speedy estimates that at the end o

Question

Company purchases a delivery van for $32,000. Speedy estimates that at the end of its four-year service life, the van will be worth $6,000. During the four-year period, the company Speedy van 130,000 miles. Actual miles driven each year were 35,000 miles in year 1 and 38,000 miles in year 2. Required: Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.) 1. Straight-line. nnu Depreciation Year 2. Double-declining-balance. Annual Depreciation Year 3. Activity-based Annual Depreciation Year

Explanation / Answer

Ans.1 Straight-line: Year Annual Depreciation 1 6500 2 6500 *Calculation: Depreciation = (Cost of assets - Salvage value) / Life of assets (32000 - 6000) / 4 6500 Ans.2 Year Annual Depreciation 1 16000 2 8000 *Calculation: Double declining balance rate =   2 * 100 / 4 years 50% year 1 Cost of Van * Double declining dep. Rate 32000 * 50% 16000 year2 (Cost of van - charged dep.) * dep. Rate (32000 - 16000) * 50% 8000 Ans.3 Activity-based: Year Annual Depreciation 1 7000 2 7600 *Calculation: (Cost - salvage value) / total activity * Actual activity driven Year 1 (32000 - 6000) / 130000 * 35000 2 (32000 - 6000) / 130000 * 38000

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