Question

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $240,000 including installation. The company estimates that the equipment will have a residual value of $30,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Year Hours Used 1 2,600 2 2,100 3 2,200 4 1,800 5 1,600 6 1,700 1. Prepare a depreciation schedule for six years using the straight-line method. (Do not round your intermediate calculations.) 2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.) 3. Prepare a depreciation schedule for six years using the activity-based method. (Round your "Depreciation Rate" to 2 decimal places and use this amount in all subsequent calculations.)

Answer 1

a) Straight line Method:

Depreciation = (cost - salvage) / number of years

= (240,000 - 30,000) / 6

= 35,000

scedule:

b)

double declining balance method:

depreciation rate = slm rate x 2

SLM rate = 35,000 / 210000 = 16.67%

so rate under this method = 16.67 x 2 = 33.33%

schedule:

Depreciation = book value x 33.33%

last year depreciation= book value in 5th year - 30,000

c)

activity based method:

first we have to calculate depreciation rate:

depreciation rate = (cost - salvage value) / total number of hours used

= (240,000 - 30,000) / 12000

= 17.5

depreciation every year = number of hours used x rate per hour

schedule: