value 0.45 points Exercise 7-11 Determine depreciation under three methods (LO7-

ID: 2543906 • Letter: V

Question

value 0.45 points Exercise 7-11 Determine depreciation under three methods (LO7-4) Speedy Delivery Company purchases a delivery van for $36,000. Speedy estimates that at the end of its four-year service life, the van will be worth $6,400. During the four-year period, the company expects to drive the van 148,000 miles. Actual miles driven each year were 40,000 miles in year 1 and 46,000 miles in year 2. Required: Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.) 1. Straight-line. Annu Year 2. Double-declining-balance. Annu Year 3. Activity-based. Annual Year ation

Explanation / Answer

1.Stright line Method

Depreciation = ( Cost of the asset – Salvage Value ) / Life of the asset

= ( $ 36000 - $ 6400 ) / 4 Years

= $ 7400/Year

Depreciation Year 1 = $ 7400

Depreciation Year 2 = $ 7400

2. Double Declining Balance Method

Year

Book Value Begining

Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining

Net Book Value End

$ 36000

$ 18000

$ 18000

$ 9000

$ 9000

***Stright Line Depreciation Rate = ¼ = 25%

Depreciation Year 1 = $ 18000

Depreciation Year 2 = $ 9000

3. Activity Based

Depreciation Year 1 = $ 36000 x (40000 Miles / 148000 Miles)

= $ 9730

Depreciation Year 2 = $ 36000 x (46000 Miles / 148000 Miles)

= $ 11189