University Car Wash built a deluxe car wash across the street from campus. The new machines cost $249,000 including installation. The company estimates that the equipment will have a residual value of $25,500. University Car Wash also estimates it will use the machine for six years or about 12,500 total hours. Actual use per year was as follows:Year Hours Used1. 2,9002. 1,8003. 1,9004. 2,1005. 1,9006. 1,900
Required:
1. Prepare a depreciation schedule for six years using the straight-line method.
2. Prepare a depreciation schedule for six years using double declining balance method.
3. Prepare a depreciation schedule for six years using activity cost method.

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JEPESSOAGO JEPESSOAGO · Answer 1

Answer:

1. straight line depreciation

depreciable value = $249,000 - $25,500 = $223,500

depreciation rate per year = $223,500 / 6 = $37,250

2. double-declining balance

depreciation rate year 1 = 2 x 1/6 x $249,000 = $83,000

depreciation rate year 2 = 2 x 1/6 x $166,000 = $55,333

depreciation rate year 3 = 2 x 1/6 x $110,667 = $36,889

depreciation rate year 4 = 2 x 1/6 x $73,778 = $24,593

depreciation rate year 5 = 2 x 1/6 x $49,185 = $16,395

depreciation rate year 6 = $32,790 - $25,500 = $7,290

units of activity

depreciable value = $223,500

depreciation rate per unit = $223,500 / 12,500 = $17.88 per unit

depreciation rate year 1 = $17.88 x 2,900 = $51,852

depreciation rate year 2 = $17.88 x 1,800 = $32,184

depreciation rate year 3 = $17.88 x 1,900 = $33,972

depreciation rate year 4 = $17.88 x 2,100 = $37,548

depreciation rate year 5 = $17.88 x 1,900 = $33,972

depreciation rate year 6 = $17.88 - 1,900 = $33,972