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19 November, 09:40

Quick-as-Lightning, a delivery service, purchased a new delivery truck for $40,000 on January 1, 2019. The truck is expected to have a useful life of ten years or 150,000 miles and an expected residual value of $3,000. The truck was driven 15,000 miles in 2019 and 13,400 miles in 2020.

1. Calculate the depreciation expense for 2019 and for 2020 under the straight-line method.

2. Calculate the depreciation expense for 2019 and for 2020 under the double-declining balance method.

3. Calculate the depreciation expense for 2021 under the double-declining balance method.

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Answers (1)
  1. 19 November, 12:24
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    1. $3,700

    2. $8,000 and $6,400

    3. $5,120

    Explanation:

    The computation of the depreciation expense for the years are shown below:

    1) Straight-line method:

    = (Original cost - residual value) : (useful life)

    = ($40,000 - $3,000) : (10 years)

    = ($37,000) : (10 years)

    = $3,700

    In this method, the depreciation is same for all the remaining useful life

    So for year 2019 and 2020 the same depreciation expense i. e $3,700 is charged separately for each year

    (2) Double-declining balance method:

    First we have to find the depreciation rate which is given below:

    = One : useful life

    = 1 : 10

    = 10%

    Now the rate is double So, 20%

    In year 2019, the original cost is 40,000, so the depreciation is $8,000 after applying the 20% depreciation rate

    And, in year 2020, the depreciation is

    = ($40,000 - $8,000) * 20%

    = $6,400

    3) For 2021, it would be

    = ($40,000 - $8,000 - $6,400) * 20%

    = $5,120

    Basically we applied the above formulas
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