Question

On May 31, 2016, Sandals report purchased a truck at a cost of $160,000. before placing the truck into service, The company spend $2,500 painting it, $500 replacing tires, and $5,000 overhauling the engine. The truck should remain in service for 5 years and have a residual value of $7,500. The truck’s annual mileage is expected to be 15,000 in each of the first two years and 10,000 miles in the next three years. In deciding which depreciation method to use, the general manager request depreciation schedule for each of the depreciation methods (straight line, unit-of production, and double – declining-balance). work out each depreciation in the depreciation schedule. pass all transaction in the journal entry. journal entry must be included. show working out for each depreciation.

work out the unit of production depreciation in the depreciation schedule. should work out based off the following information listed below

Miles                                       60,000

Cost                                         165,000                                  

Residual value                        7,500                                      

Depreciable amount                $165,000 - $7,500 = $157,500

Depreciation per unit             157,500 / 60,000 = 2.63

Answer 1

ANSWER:-

The depreciation methods:

Value of truck –

Cost	$160,000
Add :painting	$2,500
Replacing tires	$500
Overhaul	$5,000
Total Value	$168,000

Straight line method:

Annual Depreciation expense

= Depreciable base x 1/useful life

Depreciable base = value of truck – residual value

Value of truck= $168,000

Residual value = $7,500

Depreciable base = 168,000 – 7,500

=$160,500

Useful life = 5 years

Annual depreciation expense = $160,500/5

= $32,100

Year Depreciation = depreciation for 7 months, (May 31 – Dec 31)

= 32,100 x 7/12

= $18,725

Book value = cost – accumulated depreciation

Depreciation schedule –

Sandal Resorts
Straight Line Method Depreciation Schedule
EOY	Depreciation Expense	Accumulated Depreciation	Book Value
2016	$18,725	$18,725	$149,275
2017	$32,100	$50,825	$117,175
2018	$32,100	$82,925	$85,075
2019	$32,100	$115,025	$52,975
2020	$32,100	$147,125	$20,875

Journal Entries
Date	Account Titles and Explanation	Ref. No.	Debit	Credit
31-Dec-16	Depreciation Expense		$18,725
	Accumulated Depreciation			$18,725
31-Dec-17	Depreciation Expense		$32,100
	Accumulated Depreciation			$32,100
31-Dec-18	Depreciation Expense		$32,100
	Accumulated Depreciation			$32,100
31-Dec-19	Depreciation Expense		$32,100
	Accumulated Depreciation			$32,100
31-Dec-20	Depreciation Expense		$32,100
	Accumulated Depreciation			$32,100

• Units of Production

Depreciation expense = depreciation rate x annual units of production

Depreciation rate = Depreciable base/total annual mileage

Total annual mileage for 5 years = (15,000 + 15,000 + 10,000 + 10,000 + 10,000)

= 60,000

Depreciable base = value of truck – residual value

Value of truck= $168,000

Residual value = $7,500

Depreciable base = 168,000 – 7,500

= $160,500

Depreciation rate = $160,500/60,000

= $2.675 per mile

Sandal Resorts
Units of Production Depreciation Schedule
EOY	Depreciation Rate	Annual Mileage	Depreciation Expense	Accumulated Depreciation	Book Value
2016	$2.675	15,000	$40,125	$40,125	$127,875
2017	$2.675	15,000	$40,125	$80,250	$87,750
2018	$2.675	10,000	$26,750	$107,000	$61,000
2019	$2.675	10,000	$26,750	$133,750	$34,250
2020	$2.675	10,000	$26,750	$160,500	$7,500

• Double Declining Balance Method

Depreciation expense, for Year 1 would be = cost x double declining balance depreciation rate

DDB depreciation rate = 2 x straight line depreciation rate

Straight line depreciation rate = 1/useful life

DDB depreciation rate = 2 x (1/5) = 40%

Depreciation expense for year 1 (May 31 – Dec 31), 7 months

= 168,000 x 40% x 7/12

Year 1 depreciation expense = $39,200

Year 2 depreciation expense = DDB rate x book value

Book value = cost – accumulated depreciation

Year 1, Accumulated depreciation = $39,200

EOY 1, Book value = 168,000 – 39,200 = $128,800

Year 2

Depreciation expense = 128,800 x 40%

= $51,520

Accumulated Depreciation = 39,200 + 51,520

= $90,720

Book value = 168,000 – 90,720

= $77,280

Year 3

Depreciation expense = 77,280 x 40%

= $30,912

Accumulated depreciation = 39,200 + 51,520 + 30,912

= $121,632

Book value = 168,000 – 121,632

= $46,368

Year 4

Depreciation expense = 46,368 x 40%

= $18,547

Accumulated depreciation = 39,200 + 51,520 + 30,912 + 18,547

= $140,179

Book value = 168,000 – 140,179

= $27,821

Year 5

Depreciation expense = 27,821 x 40%

= $11,128

Accumulated depreciation = 39,200 + 51,520 +30,912 + 18,547 + 11,128

= $151,307

Book value = 168,000 – 151,307

= $16,693

Sandal Resorts
Double Declining Balance Depreciation Schedule
EOY	Depreciation Expense	Accumulated Depreciation	Book Value
2016	$39,200	$39,200	$128,800
2017	$51,520	$90,720	$77,280
2018	$30,912	$121,632	$46,368
2019	$18,547	$140,179	$27,820
2020	$11,128	$151,307	$16,693

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