1.) Carrie Heffernan Company purchased a delivery van on January 1, 2016, for $5
ID: 2551985 • Letter: 1
Question
1.) Carrie Heffernan Company purchased a delivery van on January 1, 2016, for $50,000. The van was expected to remain in service 4 years (or 100,000 miles) and has a residual value of $5,000. The van traveled 30,000 miles the first year, 25,000 miles the second year, and 22,500 miles in the third and fourth years.
Required:
1. Prepare a schedule of depreciation expense per year for the first four years of the asset's life using the (a) straight-line method, (b) units-of-production method, and (c) double-declining-balance method.
2. Prepare a schedule of the book value of the van for each of the four years using the (a) straight-line method, (b) units-of-production method and (c) double-declining-balance method.
Explanation / Answer
1.SCHEDULE OF DEPRECIATION EXPENSE PER YEAR FOR THE FIRST FOUR YEARS OF THE ASSET'S LIFE USING THE (A) STRAIGHT-LINE METHOD, (B) UNITS-OF-PRODUCTION METHOD, AND (C) DOUBLE-DECLINING-BALANCE METHOD.
STRIGHT LINE METHOD
Depreciation = ( Cost of the asset – Salvage Value ) / Life of the asset
= ( $ 50000 - $ 5000 ) / 4 Years
= $ 7400/Year
Depreciation Year 1 = $ 11250
Depreciation Year 2 = $ 11250
Depreciation Year 3 = $ 11250
Depreciation Year 4 = $ 11250
UNITS OF PRODUCTION METHOD
Depreciation Year 1 = $ 45000 x (30000 Miles / 100000 Miles)
= $ 13500
Depreciation Year 2 = $ 45000 x (25000 Miles / 100000 Miles)
= $ 11250
Depreciation Year 3 = $ 45000 x (22500 Miles / 100000 Miles)
= $ 10125
Depreciation Year 4 = $ 45000 x (22500 Miles / 100000 Miles)
= $ 10125
Depreciation Year 1 = $ 13500
Depreciation Year 2 = $ 11250
Depreciation Year 3 = $ 10125
Depreciation Year 4 = $ 10125
DOUBLE DECLINING BALANCE METHOD
Year
Book Value Begining
Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining
Net Book Value End
1
$ 50000
$ 25000
$ 25000
2
$ 25000
$ 12500
$ 12500
3
$ 12500
$ 6250
$ 6250
4
$ 6250
$ 1250
$ 5000
***Stright Line Depreciation Rate = ¼ = 25%
Depreciation Year 1 = $ 25000
Depreciation Year 2 = $ 12500
Depreciation Year 3 = $ 6250
Depreciation Year 4 = $ 1250
2.SCHEDULE OF THE BOOK VALUE OF THE VAN FOR EACH OF THE FOUR YEARS USING THE (A) STRAIGHT-LINE METHOD, (B) UNITS-OF-PRODUCTION METHOD AND (C) DOUBLE-DECLINING-BALANCE METHOD
STRIGHT LINE METHOD
YEAR
OPENING BALANCE
DEPRECIATION
BOOK VALUE
1
50000
11250
38750
2
38750
11250
27500
3
27500
11250
16250
4
16250
11250
5000
UNITS OF PRODUCTION METHOD
YEAR
OPENING BALANCE
DEPRECIATION
BOOK VALUE
1
50000
13500
36500
2
36500
11250
25250
3
25250
10125
15125
4
15125
10125
5000
DOUBLE DECLINING BALANCE METHOD
YEAR
OPENING BALANCE
DEPRECIATION
BOOK VALUE
1
50000
25000
25000
2
25000
12500
12500
3
12500
6250
6250
4
6250
1250
5000
Year
Book Value Begining
Double Declining Depreciation = 2 x SL Depreciation Rate x Book Value Begining
Net Book Value End
1
$ 50000
$ 25000
$ 25000
2
$ 25000
$ 12500
$ 12500
3
$ 12500
$ 6250
$ 6250
4
$ 6250
$ 1250
$ 5000
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