Question

Clifford Delivery Company purchased a new delivery truck for $72,000 on April 1, 2019. The truck is expected to have a service life of 5 years or 90,000 miles and a residual value of $3,000. The truck was driven 8,000 miles in 2019 and 20,000 miles in 2020. Clifford computes depreciation expenses to the nearest whole month.

Required:

1. Compute depreciation expense for 2019 and 2020 using the following methods: (Round your answers to the nearest dollar.)
   1. Straight-line method

      2019	$
      2020	$

   2. Sum-of-the-years'-digits method

      2019	$
      2020	$

   3. Double-declining-balance method

      2019	$
      2020	$

   4. Activity method

      2019	$
      2020	$

2. For each method, what is the book value of the machine at the end of 2019? At the end of 2020? (Round your answers to the nearest dollar.)
   1. Straight-line method

      2019	$
      2020	$

   2. Sum-of-the-years'-digits method

      2019	$
      2020	$

   3. Double-declining-balance method

      2019	$
      2020	$

   4. Activity method

      2019	$
      2020	$

3. Next Level The book value of the asset in the early years of the asset's service will be under an accelerated method as compared to the straight-line method. The method is appropriate when the service life of the asset is affected primarily by the amount the asset is used.

Answer 1

Answer :

Step 1 :. Depreciation expense

under straight line method :

2019	$10,350
2020	$13,800

Under sum of year's digits method :

2019	$17,250
2020	$19,550

Under double declining Balance method :

2019	$28,800
2020	$17,280

Under Activity method :

2019	$6,133
2020	$15,333

Step 1 : Book value at the end of year

under straight line method :

2019	$61,650
2020	$47,850

Under sum of year's digits method :

2019	$54,750
2020	$35,200

Under double declining Balance method :

2019	$43,200
2020	$25,920

Under Activity method :

2019	$65,867
2020	$50,534

Explanation :  

1) Depreciation schedule under straight line method :

Depreciation = (cost of asset - salvage value) ÷ life of asset

Cost of asset = $72,000, salvage value = $3,000

Life = 5 years

Year	Depreciation	Original cost	Accumulated Depreciation	Book value at the end of year (Original cost - Accumulated depreciation)
2019	$10,350 {($72,000 - $3,000) ÷ 5 } × 9months/12	$72,000	$10,350	$61,650
2020	$13,800	$72,000	$24,150	$47,850

2) Depreciation under sum of years digits method :

Depreciation = (cost of asset - salvage value) × Number of years of estimated life remaining at the beginning of the year /Sum of years digits

Sum of years digits = n(n+1) ÷ 2 = 5(5+1) ÷ 2 = 15

Year	opening book value	Depreciable cost (Original cost - salvage value)	Depreciation percentage	Annual depreciation	Accumulated depreciation	Book value at the end
2019	72,000	69,000	25% (5/15 × 9/12)	$17,250	$17,250	$54,750
2020	$54,750	69,000	28.333% (5/15 × 3/12 + 4/15 × 9/12)	$19,550	$36,809	$35,200

3) Depreciation schedule under Double Declining Balance method :

Depreciation = cost of asset × Depreciation rate

Cost of asset = $72,000

Depreciation rate = 2 × 1/usefull life × 100

= 2 × 1/5 × 100 = 40%

Year	opening balance	Depreciation (Opening balance × 40%)	Accumulated depreciation	Book value at the end (Opening value - Depreciation)
2019	72,000	$28,800 ($72,000 × 40% × 9 months/12)	$28,800	$43,200
2020	$43,200	$17,280	$46,080	$25,920

4) Activity method :

Depreciation = (cost of asset - salvage value) × Actual miles for the period / total estimated miles

i)Depreciation for 2019 :

= ($72,0000 - $3,000) × 8,000 miles/90,000

= $6,133

Carrying value end of 2019 = $72,000 - $6,133 =$65,867

ii)Depreciation for 2020 :

= ($72,000 - $3,000) × 20,000 miles /90,000

= $15,333

Carrying value end of 2020 = $65,867 - $15,333 =$50,534