Question

University Car Wash built a deluxe car was across the street from campus. The new machines cost $246,000 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.

1) 2,800
2) 1,900
3) 2,000
4) 2,000
5) 1,800
6) 1,500
Prepare a schedule for six-years using straight- line, double-declining balance, and activity-based method.

Answer 1

straight line depreciation

depreciable value = $246,000 - $27,000 = $219,000

depreciation rate per year = $219,000 / 6 = $36,500

double-declining balance

depreciation rate year 1 = 2 x 1/6 x $246,000 = $82,000

depreciation rate year 2 = 2 x 1/6 x $164,000 = $54,667

depreciation rate year 3 = 2 x 1/6 x $109,333 = $36,444

depreciation rate year 4 = 2 x 1/6 x $72,889 = $24,296

depreciation rate year 5 = 2 x 1/6 x $48,593 = $16,198

depreciation rate year 6 = $32,395 - $27,000 = $5,395

units of activity

depreciable value = $246,000 - $27,000 = $219,000

depreciation rate per unit = $219,000 / 12,000 = $18.25 per unit

depreciation rate year 1 = $18.25 x 2,800 = $51,100

depreciation rate year 2 = $18.25 x 1,900 = $34,675

depreciation rate year 3 = $18.25 x 2,000 = $36,500

depreciation rate year 4 = $18.25 x 2,000 = $36,500

depreciation rate year 5 = $18.25 x 1,800 = $32,850

depreciation rate year 6 = $18.25 - 1,500 = $27,375