Question

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $261,000 including installation. The company estimates that the equipment will have a residual value of $27,000. 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	2,800
2	1,400
3	1,500
4	2,500
5	2,300
6	1,500
Required: 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

1.

Straight line Method
Cost of Machine	$ 261,000
Less: salvage value	$    27,000
Depreciable value	$ 234,000
Depreciation ($234,000 / 6)	$    39,000
Depreciation expense for per year	$    39,000

Year	Depreciation expense	Accumulated depreciation	Net book value
1	$                             39,000	$                                      39,000	$            222,000
2	$                             39,000	$                                      78,000	$            183,000
3	$                             39,000	$                                    117,000	$            144,000
4	$                             39,000	$                                    156,000	$            105,000
5	$                             39,000	$                                    195,000	$               66,000
6	$                             39,000	$                                    234,000	$               27,000

2.

Depreciation under DDB Method
Year - a	Net Book value, beginning of year - b	Double declained depreciation - c = b/Life of assets*2	Accumulated depreciation	Net book value, End of the year - d = b-c
Year 1	$                        261,000	$                                                87,000	$          87,000	$                       174,000
Year 2	$                        174,000	$                                                58,000	$        145,000	$                       116,000
Year 3	$                        116,000	$                                                38,667	$        183,667	$                         77,333
Year 4	$                          77,333	$                                                25,778	$        209,444	$                         51,556
Year 5	$                          51,556	$                                                17,185	$        226,630	$                         34,370
Year 6	$                          51,556	$                                                24,556	$        251,185	$                         27,000

3.

Depreciation under Activity based Method
Year - a	Depreciable value ($261,000-$27,000)	Number of hours used - c	Depreciation expense - d = b/12,000*c	Accumulated depreciation
Year 1	$                   234,000	2,800	$                             54,600	$          54,600
Year 2	$                   234,000	1,400	$                             27,300	$          81,900
Year 3	$                   234,000	$                                      1,500	$                             29,250	$        111,150
Year 4	$                   234,000	$                                      2,500	$                             48,750	$        159,900
Year 5	$                   234,000	$                                      2,300	$                             44,850	$        204,750
Year 6	$                   234,000	$                                      1,500	$                             29,250	$        234,000

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