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Problem 7-5A Determine depreciation under three methods (LO7-4)

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University Car Wash built a deluxe car wash across the street from campus. The new machines cost $270,000 including installation. The company estimates that the equipment will have a residual value of $24,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows:

Year	Hours Used
1	3,100
2	1,100
3	1,200
4	2,800
5	2,600
6	1,200

References

Section BreakProblem 7-5A Determine depreciation under three methods (LO7-4)

7.

value:
3.00 points

Required information

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.)
  

References

eBook & Resources

WorksheetDifficulty: 3 Hard

Problem 7-5A Part 1Learning Objective: 07-04 Calculate depreciation of property, plant, and equipment.

Check my work

8.

value:
4.00 points

Required information

Problem 7-5A Part 2

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

References

eBook & Resources

WorksheetDifficulty: 3 Hard

Problem 7-5A Part 2Learning Objective: 07-04 Calculate depreciation of property, plant, and equipment.

Check my work

9.

value:
3.00 points

Required information

Problem 7-5A Part 3

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.)
  

References

eBook & Resources

WorksheetDifficulty: 3 Hard

Problem 7-5A Part 3Learning Objective: 07-04 Calculate depreciation of property, plant, and equipment.

Check my work

Answer 1

Answer to Part 1.

Straight Line Depreciation per year = (Cost – Residual Value) / Useful Life
Straight Line Depreciation per year = (270,000 – 24,000) / 6
Straight Line Depreciation per year = 246,000 / 6
Straight Line Depreciation per year = $41,000

Answer to Part 2.
Double Declining Depreciation rate = 2 * Straight Line Depreciation Rate
Straight Line Depreciation Rate = 1 / Useful Life
Straight Line Depreciation Rate = 1/ 6

Double Declining Depreciation rate = 2 * 1/6 = 33.33%

Answer to Part 3.
Depreciation per Machine Hour = (Cost – Residual Value) / Expected Machine Hour
Depreciation per Machine Hour = (270,000 – 24,000) / 12,000
Depreciation per Machine Hour = $20.50

Depreciation for Year 1 = $20.50 * 3,100 = $63,550
Depreciation for Year 2 = $20.50 * 1,100 = $22,550
Depreciation for Year 3 = $20.50 * 1,200 = $24,600
Depreciation for Year 4 = $20.50 * 2,800 = $57,400
Depreciation for Year 5 = $20.50 * 2,600 = $53,300
Depreciation for Year 6 = $20.50 * 1,200 = $24,600