Question

Required information

Problem 7-5A Determine depreciation under three methods (LO7-4)

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University Car Wash built a deluxe car wash across the street from campus. The new machines cost $246,000 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   1,900
3   2,000
4   2,000
5   1,800
6   1,500
Problem 7-5A Part 2

2. Prepare a depreciation schedule for six years using the double-declining-balance method. (Do not round your intermediate calculations.)

Answer 1

Solution

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Depreciation expense	Accumulated Depreciation	Ending Book Value
1	$ 246,000	33.33%	$ 82,000	$ 82,000	$ 164,000
2	$ 164,000	33.33%	$ 54,667	$ 136,667	$ 109,333
3	$ 109,333	33.33%	$ 36,444	$ 173,111	$ 72,889
4	$ 72,889	33.33%	$ 24,296	$ 197,407	$ 48,593
5	$ 48,593	33.33%	$ 16,198	$ 213,605	$ 32,395
6	$ 32,395	33.33%	$ 5,395	$ 219,000	$ 27,000

Working

Double declining Method
A	Cost	$ 246,000
B	Residual Value	$ 27,000
C=A - B	Depreciable base	$ 219,000
D	Life [in years]	6
E=C/D	Annual SLM depreciation	$ 36,500
F=E/C	SLM Rate	16.67%
G=F x 2	DDB Rate	33.33%

..

It can be seen that in Double declining balance method depreciation expense in year 6 is not 33.33% because 33.33% depreciation would make ending book value lower than residual value so depreciation is limited to an amount which makes ending book value equal to residual value.