On January 1, 2021, the Excel Delivery Company purchased a delivery van for $46,000. At the end of its five-year service life, it is estimated that the van will be worth $4,000. During the five-year period, the company expects to drive the van 165,000 miles.

Required:

Calculate annual depreciation for the five-year life of the van using each of the following methods.

rev: 05_15_2019_QC_CS-168776, 11_22_2019_QC_CS-191707

Part 1

1. Straight line.

2. Double-declining balance. (Round your answers to the nearest whole dollar amount.)

Years Depreciatiation

a. 2021

b. 2022

c. 2023

d. 2024

e. 2025

3. Units of production using miles driven as a measure of output, and the following actual mileage: (Do not round intermediate calculations.)

miles Depreciation

a. 2021 35,000

b. 2022 37,000

c. 2023 28,000

d. 2024 33,000

e. 2025 34,000

Given

Cost $46000

Life = 5 years

Salvage Value = $ 4000

Total miles = 165,000

Formula

Depreciation Straight Line Method = Cost - Salvage Value / Useful Life

Straight Line Rate = 100% / useful Life = 100%/5 = 20%

Double Declining Method = 2 * Straight Line Rate

Double Declining Method = 2 * Straight Line Rate = 2*20% = 40%

1. Depreciation Straight Line Method = Cost - Salvage Value / Useful Life

Depreciation Straight Line Method = $ 46000 - $4000 / 5 = $ 8,400

The depreciation expense using the straight line method does not change unless the salvage value is reached

Years Depreciation Accumulated Dep Book Value

(Cost - Accu. Dep)

a. 2021 $ 8,4000 8400 37600

b. 2022 $ 8,4000 16,800 29,200

c. 2023 $ 8,4000 25200 20,800

d. 2024 $ 8,4000 33,600 12,400

e. 2025 $ 8,4000 42000 4000

2. Straight Line Rate = 100% / useful Life = 100%/5 = 20%

Double Declining Method = 2 * Straight Line Rate

Double Declining Method = 2 * Straight Line Rate = 2*20% = 40%

In double declining method the rate is multiplied to the cost to get the depreciation expense. 40 % of $ 46000 = $ 18400

Each year the rate is multiplied with the remaining book value after deducting the depreciation expense from the cost as $ 46000 - $ 18400 = $ 27600

Next years depreciation will be $ 27600 * 40% = $ 11040.

This will be added in the original depreciation expense $ 18400 + $ 11040 = $ 29440 and deducted from cost to get the book value. $ 46,000 - $ 29440 = $ 16560.

Again rate will be multiplied and each years depreciation will be calculated similarly.

It has been summarized in the table below.

Years Dep Rate Dep Expense Accu. Dep. Book Value

a. 2021 40% 18400 18400 27600

b. 2022 40% 11040 29440 16560

c. 2023 40% 6624 36064 9936

d. 2024 40% 3974.4 40,038.4 5961.6

e. 2025 40% 2384.64 42,0423.4 3576.96

3. Depreciation per unit = (Cost - Salvage value) / Total units of production * Units of Production

Years Mileage Depreciation Depreciation

a. 2021 35,000 ($ 42000/165000) * 35000 8909.09

b. 2022 37,000 ($ 42000/165000) * 37000 9418.18

c. 2023 28,000 ($ 42000/165000) * 28000 7127.27

d. 2024 33,000 ($ 42000/165000) * 33000 8400

e. 2025 34,000 ($ 42000/165000) * 34000 8654.54