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 1/1/15 $ 96,000 $ 6,500 5 Straight-line 2 1/1/15 122,000 12,000 5 Declining-balance 3 1/1/16 93,000 9,000 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 120,000. Actual miles of use in the first 3 years were 2016, 24,000; 2017, 35,500; and 2018, 32,000. For Bus #3, calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places, e.g. 0.50.) Depreciation expense $ per mile Compute the amount of accumulated depreciation on each bus at December 31, 2017. (Round answers to 0 decimal places, e.g. 2,125.) Accumulated depreciation BUS 1 $ BUS 2 $ BUS 3 $ If Bus 2 was purchased on April 1 instead of January 1, what is the depreciation expense for this bus in (1) 2015 and (2) 2016? (Round answers to 0 decimal places, e.g. 2,125.) (1) 2015 (2) 2016 Depreciation expense $ $

Answer 1

1) Depreciation expense per mile for Bus 3 = (Cost - Salvage Value)/Useful life in miles

= ($93,000 - $9,000)/120,000 miles = $0.70 per mile

2) Calculation of Accumulated Depreciation for Each Bus (Amounts in $)

Bus 1

Annual Depreciation expense for Bus 1 = (Cost - Salvage Value)/Useful life

= ($96,000-$6,500)5 yrs = $17,900 per year

Accumulated depreciation on 12/31/17 = $17,900*3 yrs = $53,700

Bus 2

Depreciation rate on Bus 2 = (1/useful life)*2 = (1/5 yrs)*2 = 40%

Accumulated depreciation on 12/31/17 = Dep. exp for 2015+Dep. for 2016+Dep. for 2017

= (Cost*40%)+[(Cost - Dep for 2015)*40%]+[(Cost - Dep for 2015 and 2016)*40%]

= ($122,000*40%)+[($122,000-$48,800)*40%]+[($122,000-$48,800-$29,280)*40%]

= $48,800+$29,280+$17,568 = $95,648

Bus 3

Depreciation expense for 2016 = Dep exp per mile*Miles used in 2016

= $0.70*24,000 miles = $16,800

Depreciation expense for 2017 = $0.70*35,500 miles = $24,850

Accumulated depreciation on 12/31/17 = $16,800+$24,850 = $41,650

3) If bus 2 was purchased on april 1

Depreciation expense for 2015 = Cost*40%*9/12

= $122,000*40%*9/12 = $36,600

Depreciation expense for 2016 = (Cost - Dep exp for 2015)*40%

= ($122,000 - $36,600)*40% = $34,160