Question

On January 1, Town Spa Pizza purchased a delivery truck for $36,000. The truck has an estimated useful life of 10 years or 140,000 miles and an estimated residual value of $8,000. Town Spa’s fiscal year is the calendar year. Calculate the amounts requested below.

1)Depreciation Expense for the year, using the production method. Assume 22,000 miles were driven this year:

A) $4,400	B) $5,657
C)2,800	D)3,600

2)The total accumulated depreciation after the truck has been used for 5 years, using the straight-line method.

A)$22,000	B)$2,800
C)$13,000	D)$14,000

3) Depreciation Expense for year 3 of use, using the double-declining balance method.

A)$ 4,032	B)$5,184
C)$3,584	D)$4,608

4)Assume the truck was purchased on September 20. The depreciation expense for calendar year 2 of use, using the double-declining balance method, would be:

A)$4,750	B)$6,840
C)$3,656	D)$5,320

Answer 1

1)	Depreciation Expense			=	22000 miles x $ 0.2
				=	$   4,400.00

2)	Accumulated Depreciation			=	$ 2800 x 5 years
				=	$14,000.00

			Depreciation	Accumulated
3)	Year	Beg. WDV	Expense	Depreciation	End. WDV
	1	$ 36,000.00	$ 7,200.00	$   7,200.00	$ 28,800.00
	2	$ 28,800.00	$ 5,760.00	$ 12,960.00	$ 23,040.00
	3	$ 23,040.00	$ 4,608.00

4)	Depreciation for Year 1			=	$ 36000 x 20% x 3/12
				=	$ 1,800.00
	Depreciation for Year 2			=	($ 36000 - $ 1800) x 20%
				=	$6,840.00

Workings:

	Cost of the truck		$ 36,000.00
Less:	Residual value		$   8,000.00
	Depreciable cost		$ 28,000.00

Depreciation using:
Straight Line Method		=	$ 28000 / 10 years
		=	$ 2,800.00	per year
Production Method		=	$ 28000 / 140000 miles
		=	$        0.20	per mile

Rate of Depreciation using DDB method				=	(100% / 10 years) x 2
				=	20%	per year