Speedy Delivery Company purchases a delivery van for $33,600. Speedy estimates t

Question

Speedy Delivery Company purchases a delivery van for $33,600. Speedy estimates that at the end of its four-year service life, the van will be worth $5,200. During the four-year period, the company expects to drive the van 177,500 miles. Actual miles driven each year were 46,000 miles in year 1 and 51,000 miles in year 2 Required your intermediate calculations.) 1. Straight-line. Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round Annual Depreciation Year 2. Double-declining-balance. Annual Year Depreciation 3. Activity-based. Annual YearDepreciation

Explanation / Answer

1. Straight-line

Annual depreciation = ($33,600 - $5,200) / 4 = $7,100

Year 1 = $7,100

Year 2 = $7,100

2. Double-declining-balance

Depreciation rate = (1 / 4) × 2 = 0.50 or 50%

Year 1 = $33,600 × 50% = $16,800

Year 2 = ($33,600 - $16,800) × 50% = $8,400

3. Activity-based

Depreciation per mile = ($33,600 - $5,200) / 177,500 = $0.16 per mile

Year 1 = 46,000 × $0.16 = $7,360

Year 2 = 51,000 × $0.16 = $8,160

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