University Car Wash built a deluxe car wash across the street from campus. The n

Question

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $261,000 including installation. The company estimates that the equipment will have a residual value of $27,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows:

Year Hours Used

1 2800

2 1400

3 1500

4 2500

5 2300

6 1500

1) Prepare a depreciation shedule for six years using the straight line method.

2)Prepare a depreciation schedule for six years using the double-declining method

3) Prepare a depreciation schedule for six years using the activity-based method.

The table should have "Depreciation Expence" "Accumlated Depreciation" and "Book Value"

Explanation / Answer

Depreciation schedule :

1) Straight line method :

Straight line dep = (261000-27000)/6 = 39000

2) Double decline method :

Straight line dep = 100/6 = 16.67%

double decline dep = 16.67*2 = 33.33%

3) Unit of activity based method :

Activity rate = (261000-27000)/12000 = 19.5 per hour

Year Book value at beginning Depreciation expenses accumlated dep Book value at ending 1 261000 39000 39000 222000 2 222000 39000 78000 183000 3 183000 39000 117000 144000 4 144000 39000 156000 105000 5 105000 39000 195000 66000 6 66000 39000 234000 27000

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