Question

mooth Riding Limo Company purchased a new limosine for $60,000 on April 30, 2016. The limo is expected to have a service life of 10 years or 110,000 miles and a residual value of $5,000. The limo was driven 12,000 miles in 2016 and 15,000 miles in 2017. Smooth Riding computes depreciation to the nearest whole month. Compute depreciation expense for 2016 and 2017 using the activity method Also, calculate the book value at the end of each year, 2016 and 2017. You must SHOW YOUR WORK! Points are given based on work shown and final answer.

Answer 1

Answer

Depreciation per year

Year	Depreciation
2016	$          6,000
2017	$          7,500

Book value at end of year

Year	Book Value at the end
2016	$                             54,000
2017	$                             46,500

Above answers are calculated as

Calculation of Depreciation
Units of Production Method
Cost of Assets	$                            60,000
Life of Assets	10 years
Residual value	$                              5,000
Estimated Units to be produced	110000
Depreciation = (Cost-Residual Value)/Life in miles	=(60000-5000)/110000
	=55000/110000
Depreciation per unit	0.50 per mile

Calculation of Depreciation per year

Year	Miles Run		Rate of Dep per mile		Depreciation	Accumulated Depreciation
2016	12000	x	$                               0.50	=	$           6,000	$                                         6,000
2017	15000	x	$                               0.50	=	$           7,500	$                                       13,500

Calculation of Book value

Year	Cost	Accumulated Depreciation	Book Value at the end
2016	$        60,000	$                                       6,000	$                             54,000
2017	$        60,000	$                                     13,500	$                             46,500

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