Question

1.) Carrie Heffernan Company purchased a delivery van on January 1, 2016, for $50,000. The van was expected to remain in service 4 years (or 100,000 miles) and has a residual value of $5,000. The van traveled 30,000 miles the first year, 25,000 miles the second year, and 22,500 miles in the third and fourth years.

Required:

1. Prepare a schedule of depreciation expense per year for the first four years of the asset's life using the (a) straight-line method, (b) units-of-production method, and (c) double-declining-balance method.

2. Prepare a schedule of the book value of the van for each of the four years using the (a) straight-line method, (b) units-of-production method and (c) double-declining-balance method.

Answer 1

1.SCHEDULE OF DEPRECIATION EXPENSE PER YEAR FOR THE FIRST FOUR YEARS OF THE ASSET'S LIFE USING THE (A) STRAIGHT-LINE METHOD, (B) UNITS-OF-PRODUCTION METHOD, AND (C) DOUBLE-DECLINING-BALANCE METHOD.

STRIGHT LINE METHOD

Depreciation             = ( Cost of the asset – Salvage Value ) / Life of the asset

                        = ( $ 50000 - $ 5000 ) / 4 Years

                        = $ 7400/Year

Depreciation Year 1 = $ 11250

Depreciation Year 2 = $ 11250

Depreciation Year 3 = $ 11250

Depreciation Year 4 = $ 11250

UNITS OF PRODUCTION METHOD

Depreciation Year 1 = $ 45000 x (30000 Miles / 100000 Miles)

                                    = $ 13500

Depreciation Year 2 = $ 45000 x (25000 Miles / 100000 Miles)

                                    = $ 11250

Depreciation Year 3 = $ 45000 x (22500 Miles / 100000 Miles)

                                    = $ 10125

Depreciation Year 4 = $ 45000 x (22500 Miles / 100000 Miles)

                                    = $ 10125

Depreciation Year 1 = $ 13500

Depreciation Year 2 = $ 11250

Depreciation Year 3 = $ 10125

Depreciation Year 4 = $ 10125

DOUBLE DECLINING BALANCE METHOD

Year	Book Value Begining	Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining	Net Book Value End
1	$ 50000	$ 25000	$ 25000
2	$ 25000	$ 12500	$ 12500
3	$ 12500	$ 6250	$ 6250
4	$ 6250	$ 1250	$ 5000

***Stright Line Depreciation Rate = ¼ = 25%

Depreciation Year 1 = $ 25000

Depreciation Year 2 = $ 12500

Depreciation Year 3 = $ 6250

Depreciation Year 4 = $ 1250

2.SCHEDULE OF THE BOOK VALUE OF THE VAN FOR EACH OF THE FOUR YEARS USING THE (A) STRAIGHT-LINE METHOD, (B) UNITS-OF-PRODUCTION METHOD AND (C) DOUBLE-DECLINING-BALANCE METHOD

STRIGHT LINE METHOD

YEAR	OPENING BALANCE	DEPRECIATION	BOOK VALUE
1	50000	11250	38750
2	38750	11250	27500
3	27500	11250	16250
4	16250	11250	5000

UNITS OF PRODUCTION METHOD

YEAR	OPENING BALANCE	DEPRECIATION	BOOK VALUE
1	50000	13500	36500
2	36500	11250	25250
3	25250	10125	15125
4	15125	10125	5000

DOUBLE DECLINING BALANCE METHOD

YEAR	OPENING BALANCE	DEPRECIATION	BOOK VALUE
1	50000	25000	25000
2	25000	12500	12500
3	12500	6250	6250
4	6250	1250	5000