Question

University Car Wash built a deluxe car wash across the street from campus. The new machines cost $255,000 including installation. The company estimates that the equipment will have a residual value of $22,500. University Car Wash also estimates it will use the machine for six years or about 12,500 total hours. Actual use per year was as follows:

Prepare a depreciation schedule for six years using the double-declining-balance method.

Answer 1

Using the double-declining-balance method, the annual depreciation schedule for University Car Wash's car wash machine over six years is as follows: Year 1 - $85,000, Year 2 - $56,666.67, and so on, with the accumulated depreciation increasing accordingly.

To prepare a depreciation schedule using the double-declining-balance (DDB) method, follow these steps:

1. Calculate the straight-line depreciation rate:

`\[ \text{Straight-Line Depreciation Rate} = \frac{1}{\text{Useful Life in Years}} \]`

In this case:

`\[ \text{Straight-Line Depreciation Rate} = (1)/(6) \]`

2. Double the straight-line rate to get the DDB rate:

`\[ \text{DDB Depreciation Rate} = 2 * \text{Straight-Line Rate} \]`

3. Calculate the annual depreciation expense:

Annual Depreciation Expense = DDB Depreciation Rate × Book Value at the Beginning of the Year

4. Create a table:

(attached)

Now you have the annual depreciation expenses and accumulated depreciation for each year using the double-declining-balance method.