Each team member is to become an expert on one depreciation method to facilitate
ID: 2485664 • Letter: E
Question
Each team member is to become an expert on one depreciation method to facilitate teammates’ understanding of that method. Follow these procedures:
a. Each team member is to select an area for expertise from one of the following depreciation methods:
1.straight-line, 2.units-of-production, and
3. double-declining-balance.
b. Using the following data, group members are to collaborate and develop a a written presentation answering the requirements.
Data and Requirements On January 8, 2009, Mojo Riders purchases a van to transport rafters back to the point of departure at the conclusion of the rafting adventures they operate. The cost of the van is $45,000. It has an estimated salvage value of $2,600 and is expected to be used for four years and driven 68,000 miles. The van is driven 10,000 miles in 2009, 17,000 miles in 2010, 20,000 in 2011, and 11,000 in 2012.
1. Compute the annual depreciation expense for each year of the van’s estimated useful life.
2. Explain when and how annual depreciation is recorded. Prepare journal entries
3. Explain the impact on income of this depreciation method versus others over the van’s life.
4. Identify the van’s book value for each year of its life and illustrate the reporting of this amount for any one year.
5. Prepare a depreciation schedule following familiar formats from your textbook to assist you in answering the above questions.
Explanation / Answer
Mojo Riders Details Amt $ Cost Of Van 45,000 Less salvage value 2,600 Depreciable value 42,400 Useful life in years 4 SL depreciation per year = 10,600 DD balance depreciation % on carrying value 50% Units of production method Expected miles to be driven in 4 years 68,000 Depreciation per mile= $ 0.6235 5 Depreciation Schedule Year Book Value in The beginning Miles driven Depreciation rate /mile Depreciation Expense Accumulatede Depreciation Book Value of Asset at Years end Year 2009 45,000 10,000 0.6235 6,235 6,235 38,765 Year 2010 38,765 17,000 0.6235 10,600 16,835 28,166 Year 2011 28,166 20,000 0.6235 12,470 29,305 15,696 Year 2012 15,696 11,000 1.1905 13,096 42,400 2,600 In last year the depreciation rate adjusted to reflect the salvage value as book value. 1 Annual Depreciations Year Depreciation Expense Year 2009 6,235 Year 2010 10,600 Year 2011 12,470 Year 2012 13,096 2 Annual depreciation recording is a year end closing process and recorded at the year end. The Accounting entry is:(for 1st Year) Accumulated Depreciation Cr 6235 Depreciation Expense Dr 6235 3 Over the total 4 years the amount of depreciation recorded will be same for all methods. In SL method it will be same each year ($10600) In DD balance it will start with $22500 in the first year and then drastically reduce each year. In units of production it is based on actual use and adjustement in the last year as given. 4 Van Book Values Year Book Value in The beginning Accumulatede Depreciation Book Value of Asset at Years end Year 2009 45,000 6,235 38,765 Year 2010 38,765 16,835 28,166 Year 2011 28,166 29,305 15,696 Year 2012 15,696 42,400 2,600 Im Year 2010 , The Balance sheet presentation will be like this Van Gross Amount 45,000 Less: Accumulated Depreciation (16,835) Net Value of Van 28,166
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