Question

Speedy Delivery Company purchases a delivery van for $38,400. Speedy estimates that at the end of its four-year service life, the van will be worth $6,200. During the four-year period, the company expects to drive the van 201,250 miles. Actual miles driven each year were 52,000 miles in year 1 and 58,000 miles in year 2.

Required Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.)
1. Straight-line.
2. Double-declining-balance
3. Activity-based.

Answer 1

1) Straight-line depreciation

Depreciation for Year 1 = $8,050

Depreciation for Year 2 = $8,050

2) Double declining balance

Therefore depreciation for

Year 1 = $19,200

Year 2 = $9,600

3) Activity based

depreciation Year 1 =$8,320

depreciation Year 2 = $9,280

Step-by-step explanation:

1) Depreciation = ($38,400 - $6,200) ÷ 4 = $8,050

Depreciation for Year 1 = $8,050

Depreciation for Year 2 = $8,050

2) straight line rate = 25%

Year 1

Net book value beginning of year = $38,400

Double-declining balance depreciation computed as 2 × SL rate × beginning NBV = $19,200

Net book value, end of year = $19,200

Year 2

Net book value beginning of year = $19,200

Double-declining balance depreciation computed as 2 × SL rate × beginning NBV = $9,600

Net book value, end of year = $9,600

Therefore depreciation for

Year 1 = $19,200

Year 2 = $9,600

3) Depreciation expense = [(cost - salvage value) × actual activity] ÷ total estimated life time activity

Therefore depreciation for:

Year 1 = [(38,400 - 6,200) × 52,000] ÷ 201,250

=$8,320

Year 2 = [(38,400 - 6,200) × 58,000] ÷ 201,250

=$9,280