Question

Straight-Line Method:

1. Corales Company acquires a delivery truck at a cost of $38,000. The truck is expected to have a salvage value of $6,000 at the end of its 4-year useful life.
Compute annual depreciation expense for the first and second year using straight line method.
------Double Declining Method:
2. Depreciation information for Corales Company is given above. Assuming the declining-balance depreciation rate is double the straight-line rate.
Compute annual depreciation for the first and second years under the double declining method.
---------Units of Activity Method:
3. Rosco Taxi Service uses the units of activity method in computing depreciation on its taxicabs. Each cab is expected to be driven 150,000 miles. Taxi no. 1o cost $39,500 and is expected to have a salvage value of $500. Taxi no. 10 is driven 30,000 miles in year 1 and 20,000 miles in year 2.
Compute the depreciation for each year.

Answer 1

1. depreciation expense for the first and second year is $8000

2. Depreciation expense in the first year =$19,000

Depreciation expense in the second year = $9500

3. Depreciation expense in year 1 = $7800

Depreciation expense in year 2 = $5200

Step-by-step explanation:

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

( $38,000 - $6,000) / 4 = $8000 = $8000

depreciation expense for the first and second year is $8000

2. Depreciation expense using the double declining method = Depreciation factor x cost of the asset

Depreciation factor = 2 x (1/useful life) = 2/4 = 0.5

Depreciation expense in the first year = 0.5 x $38,000 = $19,000

Book value at the beginning of year 2 = $38,000 - $19,000 = $19,000

Depreciation expense in the second year = 0.5 x $19,000 = $9500

3. (miles driven in a year / expected miles to be driven) x ( cost of asset - salvage value)

Depreciation expense in year 1 = (30,000 / 150,000) x ($39,500 - $500) = $7800

Depreciation expense in year 2 = (20,000 / 150,000) x ($39,500 - $500) = $5200