Homework: 12/10 PP&E; (graded homework) Score: 0 of 5 pts 101 1 (0complete) HWSc

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Homework: 12/10 PP&E; (graded homework) Score: 0 of 5 pts 101 1 (0complete) HWScore: 0%, 0 of 5 pts E7-40B (similar to) Question Help Dig City Pizza bought a used Toyota delivery van on January 2, 2016, for $22,000. The van was expected to remain in service for four years (80,000 mles). At the end of is uselul life, Big Ciy ofica's estmaed that the van's residual value would be $2,000 The van traveled 32,000 mlies the first year, 28,000 miles the second year, 15,000 mlies the thied year, and 5,000 miles in the fourth year Requirements 1. Prepare a schedule of depreciation expense per year for the van under the three depreoiation methods 2. Which method best tracks the weat and tear on the van? . Which method would Big City prefer to use for income tax purposes? Explain in detail why Big City would prefer this method edirgealance metods mand tote nered hodemal places an" Requirement 1. Prepare a schedle of depredaton expense per year forte van under the tree doreaaton metod·(Foru-dproduction and doti each step of the caloulation For years with $O depreciaion, make sure to enter "O" in the appropriate column Straight-Line 2016 2017 2018 2019 Tolal Enter any number in the edit fields and then clok Check Answer Check Anewr Clear All

Explanation / Answer

Straight Line Method:

Depreciable base: Cost – Residual value = $22000 - $2000 = $20000

Useful life: 4 years

Depreciation: $20000 / 4 = $5000 per year

Double-declining Balance Method:

Under this method, depreciation rate is adjusted to 200% of the straight line rate. Straight line rate is 25%, i.e. $5000 / $20000 * 100. Therefore double –declining rate would be 50% (25 * 200%)

Units of production method takes into consideration the physical wear and tear, usage of the asset etc. while computing depreciation.

As from the computation perfect method which best tracks physical wear and tear of the asset is none other than Units-of-production method. This is also a scientific method which only takes care of the depreciation based on actual usage to the total capacity usage.

Straight Line Method Year Depreciation 2016 5000 2017 5000 2018 5000 2019 5000 Total 20000

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