Problem 9-2A In recent years, Swifty Transportation purchased three used buses.

Question

Problem 9-2A In recent years, Swifty 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 shown as follows Salvage Value Useful Life Depreciation Bus Acquired Cost in Years 4 4 4 Method $99,400 118,000 82,400 7,500 10,000 8,000 Straight-line Declining-balance Units-of-activity 2 3 For the declining-balance method, the company uses the double-declining rate. For the units-of-activity method, total miles are expected to be 120,000. Actual miles of use in the first 3 years were 2018, 27,000; 2019, 31,500; and 2020, 31,500 For Bus #3, calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places, eg, 0.50.) Depreciation expense per mile Compute the amount of accumulated depreciation on each bus at December 31, 2019. (Round depreciation cost per unit to 2 decimal places, e.g. 0.50 and depreciation rate to 0 decimal places, e.g. 15%. Round final answers to 0 decimal places, e.g. 2,125.) Accumulated depreciation BUS 1 BUS 2 BUS 3

Explanation / Answer

Actual miles of use for Bus 3 = 27,000 miles in the year 2018, 31,500 miles in the year 2019 and 31,500 miles in the year 2020

Depreciation per mile under the units of activity method = (cost - salvage value) / total miles

= (82,400 - 8,000) / 90,000 = 0.83

Depreciation expense = $ 0.83 per mile

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Depreciation on Bus 1

Depreciation under Straight line method for 2017 = (cost - salvage value) / useful life

(99,400 - 7,500) / 4 = 22,975

Depreciation under the straight line method is same for all the years of usage

Depreciation in the year 2018 = 22,975

Depreciation in the year 2019 = 22,975

Accumulated depreciation for 3 years from January 1, 2017 to December 31, 2019 = 22,975+22,975+22,975 = 68,925

Depreciation on Bus 2

Depreciation under Double declining balance method = (cost - accelerated depreciation) / useful life * 2

Accumulated depreciation in the year 2017 = 0

Depreciation in the year 2017 = (118,000 - 0) / 4 * 2 = 59,000

Accumulated depreciation in the year 2018 = 59,000

Depreciation in the year 2018 = (118,000 - 59,000) / 4 * 2 = 29,500

Accumulated depreciation in the year 2019 = 59,000 + 29,500 = 88,500

Depreciation in the year 2019 = (118,000 - 88,500) / 4 * 2 = 14,750

Accumulated depreciation for 3 years from January 1, 2017 to December 31, 2019 = 59,000 + 29,500 + 14,750 = 103,250

Depreciation on Bus 3

Depreciation under units of activity method = (cost - salvage units) / total miles * miles this year

Depreciation for 2018 = (82,400 - 8,000) / 90,000 * 27,000 = 22,320

Depreciation for 2019 = (82,400 - 8,000) / 90,000 * 31,500 = 26,040

Accumulated depreciation for 2 years from January 1, 2018 to December 31, 2019 = 22,320+26,040 = 48,360

Accumulated depreciation

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Depreciation under double declining balance method = (cost - accumulated deprecition) / useful life * 2

Accumulated depreciation in the year 2017 = 0

Depreciation in the year 2017 = [(118,000 - 0) / 4 *2] * 9/12 = 44,250

Accumulated depreciation in the year 2018 = 44,250

Depreciation in the year 2018 = (118,000 - 44,250) / 4 *2 = 36,875

Bus 1 68,925 Bus 2 103,250 Bus 3 48,360

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