Linton Company purchased a delivery truck for $34,000 on January 1, 2020. The truck has an expected salvage value of $2,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2020 and 12,000 in 2021.

Instructions

(a) Compute depreciation expense for 2020 and 2021 using (1) the straight-line method, (2) the units-of-activity method, and (3) the double-declining-balance method.

(b) Assume that Linton uses the straight-line method.

1. Prepare the journal entry to record 2020 depreciation.

2. Show how the truck would be reported in the December 31, 2020, balance sheet.

(a) Depreciation expenses for 2020 and 2021

(1) Straight-line method: Depreciation expenses for 2020 and 2021 is the same at $4,000 each year.

(2) Units-of-activity method: Depreciation expenses in 2020: $4,800; Depreciation expenses in 2021: $3,840

(3) Double-declining-balance method: Depreciation expenses in 2020: $8,500; Depreciation expenses in 2021: $6,375

(b)

(1) Dr Depreciation expenses 4,000

Cr Accumulated Depreciation 4,000

The truck would be reported as:

Vehicles - Truck 34,000

Accumulated Depreciation - Truck (4,000)

Carrying amount 30,000

Explanation:

Calculations and explanations as followed:

(a)

(1) For straight line method, depreciation will be the same through out truck useful life which is calculated as: (34,000 - 2,000) / 8 = $4,000

(2) Units-of-activity: One mile driven will incur $0.32 depreciation. = > Depreciation in 2020 = 0.32 x 15,000 = $4,800; Depreciation in 2021 = 0.32 x 12,000 = $3,840

(3) Depreciation of each year will be calculated as Net Book value x Depreciation rate; with depreciation rate is 2 x 1/8 = 25%. Thus Depreciation expenses in 2020 is 34,000 x 25% = $8,500; Depreciation expenses in 2021 is (34,000 - 8,500) x 25% = $6,375.

(b)

(2) As in 2020, only one year of depreciation is recorded, the accumulated depreciation is $4,000.