Question

Three different companies each purchased trucks on January 1, 2018, for $74,000. Each truck was expected to last four years or 250,000 miles. Salvage value was estimated to be $5,000. All three trucks were driven 80,000 miles in 2018, 60,000 miles in 2019, 45,000 miles in 2020, and 70,000 miles in 2021. Each of the three companies earned $63,000 of cash revenue during each of the four years. Company A uses straight-line depreciation, company B uses double-declining-balance depreciation, and company C uses units-of-production depreciation. Answer each of the following questions. Ignore the effects of income taxes. c-1. Calculate the book value on the December 31, 2020, balance sheet?

Answer 1

Book value on December 31, 2020, balance sheet is as calculated below:

	Company 1	Company 2	Company 3
Purchase Price of truck	74,000	74,000	74,000
Useful Life	4 years	4 years	4 years
salvage value	5,000	5,000	5,000
Depreciation Method	Straight line	Double declining	Units of production
Book Value on Dec 31, 2020	22,250	9,250	22,940

Working:

Depreciation Schedule
Straight Line Method
	Cost	Annual Dep.		Acc. Dep.	Carrying value
Year of purchase	74,000		-	-	74,000
2018	74,000	(74,000-5,000)/4	17,250	17250	56,750
2019	74,000	(74,000-5,000)/4	17,250	34500	39,500
2020	74,000	(74,000-5,000)/4	17,250	51750	22,250
Depreciation Schedule
Double-Declining Balance method
	Cost	Annual Dep.		Acc. Dep.	Carrying value
Year of purchase	74,000	-	-	-	74,000
2018	74,000	(50% of 74,000)	37,000	37,000	37,000
2019	74,000	(50% of 37,000)	18,500	18,500	18,500
2020	74,000	(50% of 18,500)	9,250	9,250	9,250
Depreciation Schedule
Units of production
	Cost	Annual Dep.		Acc. Dep.	Carrying value
Year of purchase	74,000	-	-	-	74,000
2018	74,000	(74,000-5,000)250,000*80,000	22080	22080	51,920
2019	74,000	(74,000-5,000)250,000*60,000	16560	38640	35,360
2020	74,000	(74,000-5,000)250,000*45,000	12420	51060	22,940