Question

Swifty Corporation purchased a delivery truck for $28,000 on January 1, 2020. The truck has an expected salvage value of $2,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 14,500 in 2020 and 11,000 in 2021.
Calculate depreciation expense per mile under units-of-activity method. (Round answer to 2 decimal places, e.g. 0.50.)
Depreciation expense $
per mile
compute depreciation expense for 2020 and 2021 using (1) the straight-line method, (2) the units-of-activity method, and (3) the double-declining-balance method. (Round depreciation cost per unit to 2 decimal places, e.g. 0.50 and depreciation rate to 0 decimal places, e.g. 15%. Round final answers to 0 decimal places, e.g. 2,125.)
1) Straight-line method $
(2) Units-of-activity method $
(3) Double-declining-balance method $

Answer 1

Answer:

1. Using Straight-line method

Depreciation expense for 2020: $3,250

Depreciation expense for 2021: $3,250

2. Using Units-of-activity method

Depreciation expense for 2020: $3,770

Depreciation expense for 2021: $2,860

3. Using Double-declining-balance method

Depreciation expense for 2020: $6,500

Depreciation expense for 2021: $4,875

Explanation:

The units-of-production depreciation method is calculated by using the following formula:

Depreciation Expense = [(Cost of asset − Salvage Value) x Number of Units Produced]/Life in Number of Units  = Depreciation Expense per unit x Number of Units Produced

In tSwifty Corporation,

Depreciation Expense per mile = ($28,000 - $2,000)/100,000 = $0.26

1. Assuming Swifty Corporation uses Straight-line method

Annual Depreciation Expense = (Cost of asset − Salvage Value)/Useful Life = ($28,000 - $2,000)/8 = $3,250

Depreciation expense for 2020: $3,250

Depreciation expense for 2021: $3,250

2. Assuming Swifty Corporation uses Units-of-activity method

Depreciation expense each year = Actual miles driven x Depreciation Expense per mile

Depreciation expense for 2020 = 14,500 x $0.26 = $3,770

Depreciation expense for 2021 = 11,000 x $0.26 = $2,860

3. Assuming Swifty Corporation uses Double-declining-balance method

Under the straight-line method, useful life is 8 years, so the asset's annual depreciation will be 12.5% of the Depreciable cost.

Depreciable cost = Total asset cost - salvage value =  $28,000-$2,000 = $26,000

Under the double-declining-balance method the 12.5% straight line rate is doubled to 25% - multiplied times the Depreciable cost's book value at the beginning of the year.

In 2020, depreciation expense = 25% x $26,000  = $6,500

At the beginning 2021, the Depreciable cost's book value is $26,000-$6,500 = $19,500

Depreciation expense in 2021 = 25% x $19,500 = $4,875