Question

In recent years, Avery Transportation purchased three used buses. Because of frequent turnover in the accounting department, a different accountant selected the depreciation method for each bus, and various methods were selected. Information concerning the buses is summarized as follows.

Bus		Acquired		Cost		Salvage Value		Useful Life in Years		Depreciation Method
1		1/1/13		$97,200		$5,700		5		Straight-line
2		1/1/13		122,000		10,000		5		Declining-balance
3		1/1/14		78,200		8,000		4		Units-of-activity

For the declining-balance method, the company uses the double-declining rate. For the units-of-activity method, total miles are expected to be 117,000. Actual miles of use in the first 3 years were: 2014, 27,600; 2015, 32,400; and 2016, 30,400.

question 1=

Compute the amount of accumulated depreciation on each bus at December 31, 2015. (Round answers to 0 decimal places, e.g. 2,125.)

		2015
BUS 1		$
BUS 2		$
BUS 3		$

Answer 1

Answer:

	Accumulated Depreciation on December 31, 2015	Depreciation method
Bus 1	$                                                                            54,900	Straight-line
Bus 2	$                                                                            95,648	Declining-balance
Bus 3	$                                                                            36,000	Units-of-activity

1. Calculation of Accumulated Depreciation for bus 1 using Straight line method :

Depreciation Expense = ( Purchase Cost - Estimated Salvage Value ) / Estimated Useful life

= ( $ 97,200 - $ 5,700 ) / 5 years

= $ 18,300 per year

Thus, Depreciation expense for every year is $ 18,300

Accumulated Depreciation at December 31, 2015:

Bus purchased on January 1,2013.

Thus, Depreciation for 3 years = Depreciation per year * 3

= $ 18,300 * 3

= $ 54,900

Thus,Accumulated Depreciation at December 31, 2015 is $ 54,900

2.Calculation of Accumulated Depreciation for bus 2 using decline balance method :
Year	Beginning of Period Book Value	Depreciation Rate (Working Note)	Depreciation Expense	Accumulated Depreciation	Book Value
(i)	(ii)	(iii)	(iv)[(ii)*(iii)]	(v)	(vi)[(ii)-(iv)]
2013	$                                         1,22,000	40%	$        48,800	$         48,800	$      73,200
2014	$                                            73,200	40%	$        29,280	$         78,080	$      43,920
2015	$                                            43,920	40%	$        17,568	$         95,648	$      26,352
Total			$       95,648
Thus, Accumulated Depreciation at December 31, 2015 is $ 95,648
Working Note:
Calculation of Rate of Depreciation under Double declining balance method is as follows:
Rate of Depreciation under Double declining balance method = 2 * Depreciation rate
= 2 * 20
= 40%
Thus, Rate of Depreciation under Double declining balance method is 40%
Depreciation Rate = (1 / Estimated Useful life) * 100
= ( 1/ 5 ) * 100
= 20 %

3. Calculation of Accumulated Depreciation for bus 3 using units of activity method
Depreciation rate = ( Purchase Cost - Estimated Salvage Value ) / Total estimated miles
= ( $ 78,200 - $ 8,000 ) / 117,000
= $ 0.60 per mile
Bus 3 aquired on january 1, 2014.
Year	Miles	Depreciation per mile	Depreciation expense
2014	27,600	$                             0.60	$                         16,560
2015	32,400	$                             0.60	$                         19,440
Total			$                         36,000
Thus,Accumulated Depreciation at December 31, 2015 is $ 36,000