Question

Depreciation for Partial Periods Clifford Delivery Company purchased a new delivery truck for $36,000 on April 1, 2019. The truck is expected to have a service life of 5 years or 120,000 miles and a residual value of $3,000. The truck was driven 8,000 miles in 2019 and 20,000 miles in 2020. Clifford computes depreciation expense to the nearest whole month. Required: Compute depreciation expense for 2019 and 2020 using the following methods: (Round your answers to the nearest dollar.) Straight-line method 2019$ fill in the blank 1 2020$ fill in the blank 2 Sum-of-the-years'-digits method 2019$ fill in the blank 3 2020$ fill in the blank 4 Double-declining-balance method 2019$ fill in the blank 5 2020$ fill in the blank 6 Activity method 2019$ fill in the blank 7 2020$ fill in the blank 8 For each method, what is the book value of the machine at the end of 2019

Answer 1

Answer:

Clifford Delivery Company

1. Depreciation Expense for 2019 and 2020:

            Straight-line  Sum-of-the-years   Double-declining  Activity method

2019  ($6,600/12*9)    5/12 * $33,000     40% *$36,000    8/120 * $33,000

  =       $4,950             = $13,750               = $14,400           = $2,200

2020 = ($6,600/12*12) 4/12 * $33,000  40% *$21,600    20/120 * $33,000

 =        $6,600             = $11,000              = $8,640             =  $5,500

2. Book value at the end of 2019:

            Straight-line  Sum-of-the-years   Double-declining  Activity method

Cost          $36,000         $36,000                  $36,000               $36,000

Depreciation

 Expense     4,950           $10,313                   $10,800                 $2,200

Book Value, End

 of 2019   $31,050         $25,687                  $25,200               $33,800

Explanation:

a) Data and Calculations:

Cost of delivery truck = $36,000

Purchase date = April 1, 2019

Estimated useful life = 5 years or 120,000 miles

Residual value = $3,000

Depreciable amount = $33,000 ($36,000 - $3,000)

Annual straight-line depreciation expense = $6,60 ($33,000/5)

            Straight-line  Sum-of-the-years   Double-declining  Activity method

2019  ($6,600/12*9)    5/12 * $33,000     40% *$36,000    8/120 * $33,000

  =       $4,950             = $13,750/12*9     = $14,400  /12*9         = $2,200

         = $4,950            = $10,313              = $10,800                    = $2,200

2020 = ($6,600/12*12) 4/12 * $33,000  40% *$25,200    20/120 * $33,000

 =        $6,600             = $11,000              = $10,080                  =  $5,500

            Straight-line  Sum-of-the-years   Double-declining  Activity method

Cost          $36,000         $36,000                  $36,000               $36,000

Depreciation 4,950           $10,313                   $10,800                 $2,200

Book Value End

 of 2019  $31,050          $25,687                  $25,200               $33,800

a) The straight-line method divides the depreciable amount by the number of useful life to get an amount that is charged every year.

b) Sum of the years digit method sums the years and uses the denominator to apportion the depreciable amount, with the first year having the largest number as numerator.

c) Double-declining method doubles the straight-line rate and depreciates on declining value of the asset.  It apportions more cost in the earlier years.  For the last year, consideration is then given to the salvage value because the asset cannot be depreciated more than its depreciable amount.

d) Activity method calculates the depreciation expense based on the activity usage.