Depreciation for Partial Periods Bar Delivery Company purchased a new delivery t
ID: 2525630 • Letter: D
Question
Depreciation for Partial Periods
Bar Delivery Company purchased a new delivery truck for $52,200 on April 1, 2016. The truck is expected to have a service life of 10 years or 144,000 miles and a residual value of $1,920. The truck was driven 9,200 miles in 2016 and 11,300 miles in 2017. Bar computes depreciation to the nearest whole month.
Required:
Compute depreciation expense for 2016 and 2017 using the
For interim computations, carry amounts out to two decimal places. Round your final answer to the nearest dollar.
Straight-line method
Sum-of-the-years'-digits method
Double-declining-balance method
Activity method
For each method, what is the book value of the machine at the end of 2016? At the end of 2017?
(Round your answers to the nearest dollar.)
Straight-line method
Sum-of-the-years'-digits method
2016: $____
Double-declining-balance method
Activity method
The book value of the asset in the early years of the asset's service will be (about the same/higher/lower) under an accelerated method as compared to the straight-line method. The (activity/double-declining balance/straight-line/sum-of-the-years-digits) method is appropriate when the service life of the asset is affected primarily by the amount the asset is used.
2016: $____ 2017: $____Explanation / Answer
Annual depreciation expense:
Straight-line depreciation
2016
$ 3,771
2017
$ 5,028
Sum-of-the-years'-digits
2016
$ 6,856
2017
$ 8,456
Double-declining-balance
2016
$ 7,830
2017
$ 8,874
Activity method
2016
$ 3,212
2017
$ 3,946
Year end book value:
Straight-line depreciation
2016
$ 48,429
2017
$ 43,401
Sum-of-the-years'-digits
2016
$ 45,344
2017
$ 36,887
Double-declining-balance
2016
$ 44,370
2017
$ 35,496
Activity method
2016
$ 48,988
2017
$ 48,254
Explanation:
Straight-line depreciation method:
Annual straight-line depreciation = Depreciable amount /Useful life
= ($ 52,200 - $ 1,920)/10 = $ 50,280/10 = $ 5,028
Depreciation in 2016 = Depreciation expense x No. of months/12
= $ 5,028 x 9/12 = $ 5,028 x 0.75 = $ 3,771
Depreciation in 2017 = $ 5,028
Book value at the end of 2016 = $ 52,200 - $ 5,028 = $ 48,429
Book value at the end of 2017 = $ 48,429 - $ 5,028 = $ 43,401
Sum-of-the-years'-digits method:
Sum-of-the-years'-digits depreciation = Depreciable Base x Remaining useful life/Sum of year’s Digit
Sum-of-the-years'-digits depreciation in 1st year = $ 50,280 x 10/ [10 x (10+1)/2]
= $ 50,280 x 10/ [(10 x 11)/2)]
= $ 50,280 x 10/ (110/2)
= $ 50,280 x 10/55 = $ 50,280 x 0.181818182
= $ 9,141.818182 or $ 9,141.82
Sum-of-the-years'-digits depreciation in 2nd year = $ 50,280 x 9/ 55
= $ 50,280 x 0.163636364
= $ 8,227.636364 or $ 8,227.64
Depreciation expense in year 2016 = 9 x $ 9,141.82/12 = 9 x 761.8181818 = $ 6,856.36
Depreciation expense in year 2017 = 9 x $ 9,141.82/12 = 3 x $ 9,141.82/12 + 9 x $ 8,227.64/12
= 3 x $ 761.8181818 + 9 x $ 685.6363636
= $ 2,285.4545 + $ 6,170.727 = $ 8,456.18
Book value at the end of 2016 = $ 52,200 - $ 6,856.36 = $ 45,343.64
Book value at the end of 2017 = $ 45,343.64 - $ 8,456.18 = $ 36,887.45
Double-declining-balance method:
Double-declining depreciation = 2 × Straight-line depreciation rate × Book value at the beginning of the year
Depreciation expense in 2016 = 2 x 10 % x $ 52,200 x 9/12
= 20 % x $ 52,200 x 9/12
= $ 7,830
Book value at the end of year 2016 = $ 52,200 - $ 7,830 = $ 44,370
Depreciation expense in year 2017 = 20 % x $ 44,370
= $ 8,874
Book value at the end year 2017 = $ 44,370 - $ 8,874 = $ 35,496
Activity method:
Depreciation expense = (Cost – salvage value) x Actual activity performed during the period/total estimated time activity of the asset
Depreciation expense in 2016 = $ 50,280 x 9,200/144,000
= $ 50,280 x 0.063888889 = $ 3,212.3333 or $ 3,212
Book value at the end of year 2016 = $ 52,200 - $ 3,212 = $ 48,988
Depreciation expense in 2016 = $ 50,280 x 11,300/144,000
= $ 50,280 x 0.078472 = $ 3,945.583 or $ 3,946
Book value at the end of year 2017 = $ 52,200 - $ 3,946 = $ 48,254
Straight-line depreciation
2016
$ 3,771
2017
$ 5,028
Sum-of-the-years'-digits
2016
$ 6,856
2017
$ 8,456
Double-declining-balance
2016
$ 7,830
2017
$ 8,874
Activity method
2016
$ 3,212
2017
$ 3,946
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