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Linton Company purchased a delivery truck for $34,000 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 15,000 in 2020 and 12,000 in 2021.

Instructions
(a) 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.
(b) Assume that Linton uses the straight-line method.

1. Prepare the journal entry to record 2020 depreciation.
2. Show how the truck would be reported in the December 31, 2020, balance sheet.

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Answer:

(a) Depreciation expenses for 2020 and 2021

(1) Straight-line method: Depreciation expenses for 2020 and 2021 is the same at $4,000 each year.

(2) Units-of-activity method: Depreciation expenses in 2020: $4,800; Depreciation expenses in 2021: $3,840

(3) Double-declining-balance method: Depreciation expenses in 2020: $8,500; Depreciation expenses in 2021: $6,375

(b)

(1) Dr Depreciation expenses              4,000

      Cr Accumulated Depreciation      4,000

The truck would be reported as:

Vehicles - Truck                                    34,000

Accumulated Depreciation - Truck       (4,000)

Carrying amount                                    30,000

Explanation:

Calculations and explanations as followed:

(a)

(1) For straight line method, depreciation will be the same through out truck useful life which is calculated as: (34,000 - 2,000)/ 8 = $4,000

(2) Units-of-activity: One mile driven will incur $0.32 depreciation. => Depreciation in 2020 = 0.32 x 15,000 = $4,800; Depreciation in 2021 = 0.32 x 12,000 = $3,840

(3) Depreciation of each year will be calculated as Net Book value x Depreciation rate; with depreciation rate is 2 x 1/8 = 25%. Thus Depreciation expenses in 2020 is 34,000 x 25% = $8,500; Depreciation expenses in 2021 is (34,000 - 8,500) x 25% = $6,375.

(b)

(2) As in 2020, only one year of depreciation is recorded, the accumulated depreciation is $4,000.

Answer:

a) Depreciation expenses for 2020 and 2021

(1) Straight-line method: Depreciation expenses for 2020 and 2021 is the same at $4,000 each year.

(2) Units-of-activity method: Depreciation expenses in 2020: $4,800; Depreciation expenses in 2021: $3,840

(3) Double-declining-balance method: Depreciation expenses in 2020: $8,500; Depreciation expenses in 2021: $6,375

(b)

(1)  Depreciation expenses   (Debit)           4,000

     Accumulated Depreciation  (Credit)      4,000

The truck would be reported as:

Vehicles - Truck                                    34,000

Accumulated Depreciation - Truck       (4,000)

Carrying amount                                    30,000

Explanation:

Calculations and explanations as followed:

(a)

(1) For straight line method, depreciation will be the same through out truck useful life which is calculated as: (34,000 - 2,000)/ 8 = $4,000

(2) Units-of-activity: One mile driven will incur $0.32 depreciation. => Depreciation in 2020 = 0.32 x 15,000 = $4,800; Depreciation in 2021 = 0.32 x 12,000 = $3,840

(3) Depreciation of each year will be calculated as Net Book value x Depreciation rate; with depreciation rate is 2 x 1/8 = 25%. Thus Depreciation expenses in 2020 is 34,000 x 25% = $8,500; Depreciation expenses in 2021 is (34,000 - 8,500) x 25% = $6,375.

(b)

(2) As in 2020, only one year of depreciation is recorded, the accumulated depreciation is $4,000.

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