Question

In: Accounting

Lake Company bought a used delivery truck on January 1, 2017, for $20,000. The delivery truck...

Lake Company bought a used delivery truck on January 1, 2017, for $20,000. The delivery truck was expected to remain in service 4 years (50,000 miles). Lake's accountant estimated that the truck’s residual value would be $2,000 at the end of its useful life. The truck traveled 14,000 miles the first year and 18,000 miles the second year. Calculate depreciation expense for the truck for 2017 and 2018 using the

• Straight-line method.

• Double-declining balance method

• Units of Production method.

Solutions

Expert Solution

Answer:-

  • Straight-Line Method:

Cost of Asset = $20,000

Useful Life = 4 years

Estimated Residual Value = $2,000

Depreciation = Cost - Estimated Residual Value / Useful Life

= 20000-2000/4 = 18000/4 = 4,500 p.a.

Hence Depreciation as per Straight Line Method :

Year Depreciation Expense
2017 $4,500
2018 $4,500
  • Double Declining Balance Method:

​​​​​​​Useful Life of the Asset = 4 years

Hence, Rate of Depreciation = 100/4 = 25%

Double Rate = 25*2 = 50%

Hence Depreciation as per Double Declining Balance Method :​​​​​​​

Year Cost/Beginning Book Value Depreciation Expense
2017 $20,000 (Cost)

$10,000

[20000*50/100]

2018 $10,000 (Beginning Book Value)

$5,000

[10000*50/100]

  • Units of Production Method:

​​​​​​​Truck Life = 50,000 miles

Miles Travelled in 1st year = 14,000

Miles Travelled in 2nd year = 18,000

Cost of Asset = $20,000

Estimated Residual Value = $2,000

Depreciaiton = Cost - Estimated Residual Value/Life of Truck in Miles * Miles Travelled

= 20000-2000/50000*Miles Travelled = 0.36*Miles Travelled

Hence Depreciation as per Units of Production Method :​​​​​​​

Year Miles Travelled Depreciation Expense
2017 14,000

$5,040

[0.36 * 14000]

2018 18,000

$6,480

[0.36 * 18000]


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