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13 June, 03:37

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.

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  1. 13 June, 04:36
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    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

    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
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