Question

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.

Answer 1

1. $3,700

2. $8,000 and $6,400

3. $5,120

Step-by-step 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