On January 1, 2018, Fast Delivery Service purchased a truck at a cost of $62,000
ID: 2605922 • Letter: O
Question
On January 1, 2018, Fast Delivery Service purchased a truck at a cost of $62,000. Before placing the truck in service, Fast spent $2,200 painting it, $1,200 replacing tires, and $4,600 overhauling the engine. The truck should remain in service for five years and have a residual value of $5,000. The truck's annual mileage is expected to be 28,000 miles in each of the first four years and 18,000 miles in the fifth year 130,000 miles in total. In deciding which depreciation method to use, Alec Rivera, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance) Requirement 1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense, accumulated depreciation, and asset book value. Begin by preparing a depreciation schedule using the straight-line method. Straight-Line Depreciation Schedule Depreciation for the Year Date Cost Cost Rate Expense Depreciation Value 1-1-2018 12-31-2018 12-31-2019 12-31-2020 12-31-2021 12-31-2022Explanation / Answer
Answer
Total Cost of the Truck = Purchase price + Painting Expense + Replacing tire cost + Overhauling engine cost
= 62,000 + 2,200 + 1,200 + 4,600
Total Cost of the Truck = $70,000
Salvage Value = $5,000
Useful Life = 5 Years
Straight Line Method
Depreciation Per year = (Cost – Salvage Value) / Useful Life
= (70,000 - 5,000) / 5
= $13,000 per year
Depreciable value = Cost – Salvage Value
= 65,000 (70,000 - 5000)
Depreciation Rate = (Depreciation per year / Depreciable value) * 100
= (13,000 / 65,000) *100
Depreciation Rate = 20%
Depreciation = Depreciation rate * Cost
Depreciation for the Year
Date
Asset Cost
Depreciable Cost
Depreciation Rate
Depreciation Expense
Accumulated Depreciation
Book Value
1/1/2018
70,000
70,000
12/31/2018
65,000
20%
13,000
13,000
57,000
12/31/2019
65,000
20%
13,000
26,000
44,000
12/31/2020
65,000
20%
13,000
39,000
31,000
12/31/2021
65,000
20%
13,000
52,000
18,000
12/31/2022
65,000
20%
13,000
65,000
5,000
Units of Production Method
Depreciable value = Cost – Salvage Value
= 65,000 (70,000 - 5000)
Total Miles = 130,000
Depreciation = (Miles usage in that year / Total Miles) * Depreciable Value
Depreciation for the Year
Date
Asset Cost
Depreciable Cost
Miles
Depreciation Rate
Depreciation Expense
Accumulated Depreciation
Book Value
1/1/2018
70,000
70,000
12/31/2018
65,000
28,000
28,000/130,000
14,000
14,000
56,000
12/31/2019
65,000
28,000
28,000/130,000
14,000
28,000
42,000
12/31/2020
65,000
28,000
28,000/130,000
14,000
42,000
28,000
12/31/2021
65,000
28,000
28,000/130,000
14,000
56,000
14,000
12/31/2022
65,000
18,000
18,000/130,000
9,000
65,000
5,000
Total
130,000
Double Declining Balance
Depreciation rate = 2 * Straight line depreciation rate
= 2 * 20%
Depreciation rate = 40%
Depreciation = Book Value * Depreciation Rate
Depreciation for the Year
Date
Asset Cost
Depreciable Cost
Book Value
Depreciation Rate
Depreciation Expense
Accumulated Depreciation
1/1/2018
70,000
70,000.0
12/31/2018
65,000
42,000.0
40%
28,000.0
28,000.0
12/31/2019
65,000
25,200.0
40%
16,800.0
44,800.0
12/31/2020
65,000
15,120.0
40%
10,080.0
54,880.0
12/31/2021
65,000
9,072.0
40%
6,048.0
60,928.0
12/31/2022
65,000
5,443.2
40%
3,628.8
64,556.8
Depreciation for the Year
Date
Asset Cost
Depreciable Cost
Depreciation Rate
Depreciation Expense
Accumulated Depreciation
Book Value
1/1/2018
70,000
70,000
12/31/2018
65,000
20%
13,000
13,000
57,000
12/31/2019
65,000
20%
13,000
26,000
44,000
12/31/2020
65,000
20%
13,000
39,000
31,000
12/31/2021
65,000
20%
13,000
52,000
18,000
12/31/2022
65,000
20%
13,000
65,000
5,000
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