Question

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $255,000 including installation. The company estimates that the equipment will have a residual value of $22,500. University Car Wash also estimates it will use the machine for six years or about 12,500 total hours. Actual use per year was as follows:

Year	Hours Used
1	3,100
2	1,600
3	1,700
4	2,300
5	2,100
6	1,700

Problem 7-5A Part 1

Required:

1. Prepare a depreciation schedule for six years using the straight-line method. (Do not round your intermediate calculations.)
  

	UNIVERSITY CAR WASH Depreciation Schedule—Straight-Line End of year amounts Year Depreciation Expense Accumulated Depreciation Book Value 1 2 3 4 5 6 Total $0

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

	UNIVERSITY CAR WASH Depreciation Schedule—Double-Declining-Balance End of year amounts Year Depreciation Expense Accumulated Depreciation Book Value 1 2 3 4 5 6 Total $0

3. Prepare a depreciation schedule for six years using the activity-based method. (Round your "Depreciation Rate" to 2 decimal places and use this amount in all subsequent calculations.)

	UNIVERSITY CAR WASH Depreciation Schedule—Double-Declining-Balance End of year amounts Year Depreciation Expense Accumulated Depreciation Book Value 1 2 3 4 5 6 Total $0

Answer 1

1.

Depreciation Schedule—Straight-Line
Year	Depreciation expense ($255,000-22,500)/6)	Accumulated depreciation	Book value
1	$                                                                  38,750	$                                38,750	$ 216,250
2	$                                                                  38,750	$                                77,500	$ 177,500
3	$                                                                  38,750	$                              116,250	$ 138,750
4	$                                                                  38,750	$                              155,000	$ 100,000
5	$                                                                  38,750	$                              193,750	$    61,250
6	$                                                                  38,750	$                              232,500	$    22,500

2.

Depreciation Schedule—Double-Declining-Balance
Year	Depreciation expense	Accumulated depreciation	Book value
1	$255,000/6*2 = $85,000	$                                85,000	$ 170,000
2	$170,000/6*2 = $56,667	$                                90,667	$ 164,333
3	$164,333/6*2 = $54,778	$                              145,445	$ 109,555
4	$109,555/6*2 = $36,518	$                              181,963	$    73,037
5	$73,037/6*2 = $24,346	$                              206,309	$    48,691
6	$48,691-$22,500 = $26,191	$                              232,500	$    22,500

3.

Depreciation Schedule—activity-based method
Year	Depreciation expense	Accumulated depreciation	Book value
1	($255,000-22,500)/12,500*3,100 = $57,660	$                                57,660	$ 197,340
2	($255,000-22,500)/12,500*1,600 = $29,760	$                                87,420	$ 167,580
3	($255,000-22,500)/12,500*1,700 = $31,620	$                              119,040	$ 135,960
4	($255,000-22,500)/12,500*2,300 = $42,780	$                              161,820	$    93,180
5	($255,000-22,500)/12,500*2,100 = $39,060	$                              200,880	$    54,120
6	($255,000-22,500)/12,500*1,700 = $31,620	$                              232,500	$    22,500

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