Question

Skysong, Inc. purchased a delivery truck for $32,400 on January 1, 2019. The truck has an expected salvage value of $2,400, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,700 in 2019 and 12,900 in 2020.

Compute depreciation expense for 2019 and 2020 using (1) the straight-line method, (2) the units-of-activity method, and (3) the double-declining-balance method. (Round depreciable cost per unit to 2 decimal places, e.g. 0.50 and depreciation rate to 0 decimal places, e.g. 15%. Round final answers to 0 decimal places, e.g. 2,125.)

				Depreciation Expense
				2019		2020
(1)		Straight-line method		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places
(2)		Units-of-activity method		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places
(3)		Double-declining-balance method		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places

Answer 1

Answer-

Answer- a)- Depreciation expense for 2019= $3750

Depreciation expense for 2020= $3750

Explanation- Straight line Method-

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

=($32400-$2400)/8 years

= $30000/8 years

= $3750        

Depreciation expense for 2019= $3750

Depreciation expense for 2020= $3750

b)- Depreciation expense- Activity method (units of output) for 2019 = $4710.

Depreciation expense- Activity method (units of output) for 2019 = $3870

Explanation- Activity method (units of output)-

=(Cost – Salvage value)/Total units produced

=($32400-$2400)/100000 miles

= $0.30 per mile

Depreciation expense in year 2019= Depreciation expense per mile*Actual miles driven in 2019

= $0.30 per mile*15700 miles

= $4710

Depreciation expense in year 2020= Depreciation expense per mile*Actual miles driven in 2020

= $0.30 per mile*12900 miles

= $3870

c)- Depreciation expense- Double-declining-balance method for 2019 = $8100.

Depreciation expense- Double-declining-balance method for 2019 = $6075.

Explanation- 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 = 1/8 = 0.125 = 12.5%
Declining Balance Rate = 2*12.5% = 25%

Depreciation for year 2019= $32400 *25% = $8100

Book value at the end of year 2019 = $32400-$8100 = $24300

Depreciation for year 2020 = $24300 *25% = $6075