Question

Please show all calculations and explanations for each row and colum (Depreciation expense,accumulated depreciation,ending book value ect.)

Prepare a depreciation schedule showing depr. exp., accumulated depreciation and ending book value, year-by-year.
3 schedules for the 3 methods straight-line, units-of-production, double declining basis. Asset is a delivery Truck.

Est. Life ………… 5
Orig. Cost Basis 24,500.00
Est. Residual Value 2,500.00
Est. total mileage 100,000
miles driven, Yr 1 21,400
miles driven, Yr 2 19,700
miles driven, Yr 3 18,900
miles driven, Yr 4 23,400
miles driven, Yr 5 16,600
Part 2:
Assuming the truck is sold at the end of yr. 3, give the gen. journal entry to record the sale (straight-line method)
assume it was sold for 11,720.00

Answer 1

Solution:

Part 1 --- Depreciation Schedule

Straight Line Method

Straight line method is a method of calculating depreciation of an asset.

Under this method depreciation is calculated by dividing depreciable asset value by estimated useful life.

Depreciable Asset Value = Cost of Asset – Salvage Value

In this method, depreciation for each year remains same.

Mathematically,

Annual Depreciation = (Cost of Asset – Salvage Value) / Useful life

Hence, Annual Depreciation = (Cost of Assets $24,500 – Salvage Value $2,500) / Useful Life 5 = $4,400

Depreciation Schedule (Straight Line Method)
Year	Depreciation Expense	Accumulated Depreciation	Ending Book Value
0			$24,500
1	$4,400	$4,400	$20,100
2	$4,400	$8,800	$15,700
3	$4,400	$13,200	$11,300
4	$4,400	$17,600	$6,900
5	$4,400	$22,000	$2,500

Unit of Production Method

Under the Units of Production method of depreciation, depreciation is charged according to the actual usage of the asset. Higher depreciation is charged when there is higher activity and less is charged when there is low level of operation. Zero depreciation is charged when the asset is idle for the whole period.

Total Estimated Mileage Driven over the useful life of Truck = 100,000

Truck’s Depreciable Cost = Cost of Asset – Salvage Value = $24,500 – 2,500 = $22,000

Under the units of production method, the Truck's depreciable cost of $22,000 is divided by 100,000 miles, resulting in depreciation of $0.22 per mile

Units of Production Method
Year	Depreciable Units (Actual Miles Driven)	Depreciation Rate per Mile	Depreciation Expenses	Accumulated Depreciation	Ending Book Value
0					$24,500
1	21400	$0.22	$4,708.00	$4,708.00	$19,792
2	19700	$0.22	$4,334.00	$9,042.00	$15,458
3	18900	$0.22	$4,158.00	$13,200.00	$11,300
4	23400	$0.22	$5,148.00	$18,348.00	$6,152
5	16600	$0.22	$3,652.00	$22,000.00	$2,500
Total	100000		$22,000

Double Declining Basis

It is a method of depreciation used by the companies when they want to quickly depreciate an asset.

The asset will depreciate much faster under this method than straight-line because we double the percentage that would be depreciated each year under straight-line.

Salvage value is not subtracted from Cost of Asset when depreciation is calculated by using this method.

The formula for double declining balance is:

Annual depreciation = Book Value * 100% / life * 2

Calculate the percentage that should be used first.

Percentage = 100% / Useful Life x 2

Once the percentage is calculated, it is the same for the rest of the asset’s life.

Depreciation Rate = 100% / Useful Life 5 x 2 = 40%

Year	DDB Depreciation for the period			End of Period
	Beginning of period book value	Depreciation Rate	Depreciation Expenses	Accumulated Depreciation	Book Value
1	24,500	40.00%	9,800	9,800	14,700
2	14,700	40.00%	5,880	15,680	8,820
3	8,820	40.00%	3,528	19,208	5,292
4	5,292	40.00%	2,117	21,325	3,175
5	3,175	40.00%	1,270 675 (refer Note)	22,000	2,500

Note – An asset cannot be depreciated below its residual value. Since the beginning book value of Truck at Year 5 is $3,175.

The depreciation as per formula is coming = 3,175*40% = $1,270

Ending Book Value = $3,175 – 1,270 = 1,905

So we need to adjust the Year 5 Depreciation to the extent of Residual Value.

Depreciation Expense for Year 5 = $3,175 - $2,500 = $675

Part 2 --- Assuming the truck is sold at the end of yr. 3, give the gen. journal entry to record the sale (straight-line method), assume it was sold for 11,720.00

Sale Value of Asset = $11,720

Accumulated Depreciation at the end of year 3 = $13,200

Following journal entry is to be passed

Date	Account Titles and Explanation	Debit	Credit
Year 3 End	Cash	$11,720
	Accumulated Depreciation	$13,200
	Asset Account (Truck)		$24,500
	Gain on Sale of Asset (Bal. figure)		$420

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you