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Homework answers / question archive / Hadicke Company purchased a delivery truck on January 1, 2019

Hadicke Company purchased a delivery truck on January 1, 2019

Accounting

Hadicke Company purchased a delivery truck on January 1, 2019. Cost of Truck $35.000 Expected residual value $10.000 Estimated useful life in years 5 years Straight-line depreciation rate 20% Estimated useful life in miles 100,000 miles Miles operated in first year 18.000 miles Instructions a.Compute depreciation expense and prepare journal entry using the straight-line method for the first year. b.Determine the depreciation expense per mile. compute depreciation expense and prepare journal entry using the units-of-activity method for the first year. c.Compute depreciation expense and prepare journal entry using the declining balance method for the first year. 7 A B I I

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a. Under straight-line method-

Given-

Cost of assets= $35000

Residual value= $10,000

Useful life (in years) = 5

Depreciation for first year= (Cost of assets - Residual value) / Useful life (in years)

= ($35,000-$10,000)/5 = $5,000.

Journal entry-

 

Debit

Credit

Depreciation expense

$5,000

 

      Accumulated depreciation

 

$5,000

(Recording of depreciation expenses)

 

 

 

b. Under activity method of deprecation-

Given-

Cost of assets= $35,000

Residual value= $10,000

Actual Activity in Period=18,000 miles

Total Estimate Output= 100,000 miles.

Depreciation expenses per mile= ((Cost – Scrap Value)/(Total Estimate Output).

= ($35,000-$10,000) / 100,000 miles)

=$0.25

Depreciation for first year = ((Cost - Scrap Value)*(Actual Activity in Period))/(Total Estimate Output).

= ($35,000-$10,000)*(18,000 miles) / 100,000 miles)

=$4,500.

Journal entry-

 

Debit

Credit

Depreciation expense

$4,500

 

      Accumulated depreciation

 

$4,500

(Recording of depreciation expenses)

 

 

 

c. Under Double Declining Balance Depreciation-

Given-

Cost of assets= $35,000

Residual value= $10,000

Useful Life (in years) = 5

Annual straight-line depreciation rate =20%

As we know Under Double Declining Balance Depreciation, depreciation is calculated with double rate to straight-line rate. In the given case straight line dep. Rate is 20% hence DDB rate will be 20% X 2= 40%. Here it should be remembered that under the DDB method annual depreciation is charged at the beginning period value with repetition until the salvage value is reached.

Here, Depreciation for first-year =$35,000*40/100=$14,000.

Journal entry-

 

Debit

Credit

Depreciation expense

$14,000

 

      Accumulated depreciation

 

$14,000

(Recording of depreciation expenses)

 

 

 

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Thanks.