Griffith Delivery Services purchased a delivery truck for $33,600. The truck has
ID: 2359987 • Letter: G
Question
Griffith Delivery Services purchased a delivery truck for $33,600. The truck has an estimated useful life oif six years and no salvage value. For purposes of preparing financial statements, Griffith is planning to use straight-line depreciation. For tax purposes, Griffith follow MACRS. Depreciation expense using MACRS is $6,720 in year 1, $10,750 in year 2, $6450 in year 3, $3,870 in years 4 and 5, and $1,940 in year 6............................................................................... 1. What is the difference between straight line and MACRS depreciated expense for each of the six year? 2. Griffiths president has asked why you use one method for the books and another for tax calculations.Explanation / Answer
1) Record the purchase of the truck on January 1, 1996.
Account Name and Type
Debit
Credit
Truck (A)
33,600
Cash (A)
33,600
If Griffith used the double-declining balance method of depreciation, determine the following
depreciation expense, accumulated depreciation, and book value amounts.
Depreciation
Accum. Deprec.
Book
Year-end date
Expense
Balance
Value
12/31/1996
11200
11200
$22,400
12/31/1997
7467
18667
$14,933
DDB rate = 2/6
Apply the rate to the NBV at the beginning of each year
If Griffith used the activity-based method of depreciation, determine the following
depreciation expense, accumulated depreciation, and book value amounts. Remember
that the asset was sold on 7/1/1998.
Depreciation
Accum. Deprec.
Book
Year-end date
Miles
Expense
Balance
Value
12/31/1996
12400
3184
3184
$30,416
12/31/1997
15000
3852
7036
$26,564
12/31/1998
7600
1952
0 (sold)
0 (sold)
Depreciation cost per mile = (33600-1500)/125000 miles =
0.2568
per mile
Calculate the gain or loss on sale on 7/1/1998 if Griffith had used the activity-based method
instead of the other two depreciation methods.
NBV on 7/1/1998 = 33,600 - (7,036+1,952) =
24612
Loss=21,000 proceeds minus 24,612 NBV =
3612
Griffith has decided to use straight-line depreciation starting on 1/1/1996. Record the sale of the truck on
July 1, 1998.
Account Name and Type
Debit
Credit
Cash (A)
21,000
Accumulated depreciation (CA)
13,375
Truck (A)
33,600
Gain on sale (G)
775
Accumulated depreciation on 7/1/1998 = (33,600-1,500)/6*2.5 =
13375
$33,600-$13,375=$20,225 book value
$21,000-$20,225=$775 gain
1) Record the purchase of the truck on January 1, 1996.
Account Name and Type
Debit
Credit
Truck (A)
33,600
Cash (A)
33,600
If Griffith used the double-declining balance method of depreciation, determine the following
depreciation expense, accumulated depreciation, and book value amounts.
Depreciation
Accum. Deprec.
Book
Year-end date
Expense
Balance
Value
12/31/1996
11200
11200
$22,400
12/31/1997
7467
18667
$14,933
DDB rate = 2/6
Apply the rate to the NBV at the beginning of each year
If Griffith used the activity-based method of depreciation, determine the following
depreciation expense, accumulated depreciation, and book value amounts. Remember
that the asset was sold on 7/1/1998.
Depreciation
Accum. Deprec.
Book
Year-end date
Miles
Expense
Balance
Value
12/31/1996
12400
3184
3184
$30,416
12/31/1997
15000
3852
7036
$26,564
12/31/1998
7600
1952
0 (sold)
0 (sold)
Depreciation cost per mile = (33600-1500)/125000 miles =
0.2568
per mile
Calculate the gain or loss on sale on 7/1/1998 if Griffith had used the activity-based method
instead of the other two depreciation methods.
NBV on 7/1/1998 = 33,600 - (7,036+1,952) =
24612
Loss=21,000 proceeds minus 24,612 NBV =
3612
Griffith has decided to use straight-line depreciation starting on 1/1/1996. Record the sale of the truck on
July 1, 1998.
Account Name and Type
Debit
Credit
Cash (A)
21,000
Accumulated depreciation (CA)
13,375
Truck (A)
33,600
Gain on sale (G)
775
Accumulated depreciation on 7/1/1998 = (33,600-1,500)/6*2.5 =
13375
$33,600-$13,375=$20,225 book value
$21,000-$20,225=$775 gain
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