In recent years, Avery Transportation has purchased three used buses. Because of
ID: 2474325 • Letter: I
Question
In recent years, Avery Transportation has 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 been used. Information concerning the buses is summarized in the table below. For the declining-balance method, the company uses the double-declining rate. For the units-of-production method, total miles are expected to be 120,000. Actual miles of use for the first 3 years were: 2013, 24,000; 2014,34,000; and 2015, 30,000. a) Compute the depreciation for each bus for the year ended December 31,2012 and December 31,2013. Prepare the journal entry to record the annual depreciation for 2013. Use one entry to record total depreciation. b) Compute the amount of accumulated depreciation on each bus at December 31, 2014. c) If Bus 2 was purchased on April I instead of January I, what would be the depreciation expense for this machine in 2012? In 2013? d) Assume Bus 1 is disposed of on December 31,2014. Compute book value for Bus 1 as of 12/31/14. Record the journal entry to record the disposal/sale given the following scenarios: i. It is scrapped as having no value. ii. It is sold for $45,000. iii. It is sold for $33,000 iv. It caught fire and is now destroyed. The insurance company provides $40,000 on the claim from the loss of the asset.Explanation / Answer
a and b.1.Computation of Depreciation of Bus 1 under Straight Line Method
Depreciation per year = Cost - salvage value / no of years = $96,000-$6000/ 5years= $18,000
Accumulated Depreciation at
Year 1 -Dec31,2012 $18,000
Year 2 -Dec31,2013 $36,000
Year 3 -Dec31,2014 $54,000
2.Computation of Depreciation of Bus 2 under Declining Balance Method.
If useful life is 4 year so straight line rate is 25%, so DDB rate is double 50%
Original cost $110,000
2012 Depreciation $55,000($110,000*50%)
Book value at the end of 2012 $55000
2013 Depreciation $27,500($55,000*50%)
Book value at the end of 2013 $27500
2014 Depreciation$13,750 ($27,500*50%)
Book value at the end of 2014 $13750
2015 Depreciation $3750($13750- $10000 salvage value)
Book value at the end of 2015 $10000
Book value can not fall below $10000
Accumulated depreciation
2012 $55,000
2013 $82,500
2014 $96250
2015 $100,00
3.Computation of Depreciation of Bus 3 under Units of production method
Depreciation per Mile = $92000-$8000/120,000 miles =0.70 per mile
Depreciation
2013 24000 miles*$0.70 = $16,800
2014 34000 miles*$0.70 =$23,800
2015 30,000 miles*$0.70 = $21,000
Acumulated Depreciation
2013 $16800
2014 $40,600
2015 $61,600
Journal Entry 2013
Depreciation Expense Dr. $62,300
Accumulate Depreciation Cr. $62,300
c. If Bus 2 was purchased on April 1 instead of January 1 then
Original cost $110,000
2012 Depreciation $41250($110,000*50% *9/12 months)
Book value at the end of 2012 $68,750
2013 Depreciation $34375($68,750*50%)
Book value at the end of 2013 $34375
2014 Depreciation$17,187.5 ($34375*50%)
Book value at the end of 2014 $17,187.5
2015 Depreciation $7,187.5($17,187.5- $10000 salvage value)
Book value at the end of 2015 $10000
Accumulated Depreciation
2012 $41,250
2013 $75,625
d. Book Value at 31/12/2014 ($96000-$54,000) =$42000
Date Accounts Debit$ Credit$ 12/31/2014 It is scraped having no slavage value Accumulated Depreciation 54000 Disposal of Fixed Asset Account 42000 Bus 1 Account 96000 It is sold for $45000 Accumulated Depreciation 54000 Cash 45000 Bus 1 Account 96000 Disposal of Fixed Asset Account(gain) 3000 It is sold for $33,000 Accumulated Depreciation 54000 Cash 33000 Disposal of Fixed Asset Account(Loss) 9000 Bus 1 Account 96000 It is destroyed in fire and insurance calim of $40000 received Insurer 40000 Accumulated Depreciation 54000 Loss on Destroyment of Fixed Asset Account 2000 Bus 1 Account 96000Related Questions
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