Question

Speedy Delivery Company purchases a delivery van for $33,600. Speedy estimates that at the end of its four-year service life, the van will be worth $5,200. During the four-year period, the company expects to drive the van 177,500 miles.

Actual miles driven each year were 46,000 miles in year 1 and 51,000 miles in year 2.

  

Required:

Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.)

  
1. Straight-line.

Year Annual Depreciation

1 ?

2 ?

2. Double-declining-balance.

Year Annual Depreciation

1 ?

2 ?

   
3. Activity-based.

Year Annual Depreciation

1 ?

2 ?

Answer 1

Answer:- 1)- Straight line Method:-

= Cost of asset- Salvage value of asset/No. of useful life (years)

=($33600-$5200)/4 years

=$28400/4 years = $7100

First year depreciation =$7100

Book value at first year =$33600-$7100=$26500     

Second year depreciation =$7100

Book value at first year =$26500-$7100=$19400

2)- Activity based depreciation:-

Annual depreciation expense per mile driven=Cost – salvage /Total miles driven

                =($33600-$5200)/177500 miles =$.16 per mile driven

Depreciation expense in year 1= Depreciation expense per mile driven*Miles driven in year 1

                                                =$.16 per mile driven * 46000 miles

                                                 =$7360

Depreciation expense in year 2= Depreciation expense per mile driven*Miles driven in year 2

                                                =$.16 per mile driven * 51000 miles

                                                 =$8160

3)- Double Declining balance depreciation is calculated using the following formula:

Depreciation = Depreciation Rate * Book Value of Asset

Depreciation rate is given by the following formula:

Depreciation Rate = Accelerator *Straight Line Rate

Straight-line Depreciation Rate = 1/4 = 0.25 = 25%
Declining Balance Rate = 2*25% = 50%

Depreciation 1^st year = $33600 *50% = $16800

Book value at end of 1^st year = $33600 – $16800 = $16800

Depreciation 2^nd year = $16800* 50% = $8400

Book value at end of 2^nd year = $16800 – $8400 = $8400