Tamarisk, Inc. purchased a delivery truck for $29,200 on January 1, 2020. The truck has an expected salvage value of $2,200, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 16,100 in 2020 and 12,800 in 2021. 1. Calculate depreciation expense per mile under units-of-activity method.
2. 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.
3. Prepare the journal entry to record 2020 depreciation.
4. Assume that Marigold uses the straight-line method. Show how the truck would be reported in the December 31, 2020, balance sheet.

1. Depreciation expense per mile = $0.27 per mile

2-1. The straight-line method

We have:

Depreciation expense for 2020 = $3,375

Depreciation expense for 2021 = $3,375

2-2. Units-of-activity method

We have:

Depreciation expense for 2020 = $4,347

Depreciation expense for 2021 = $3,456

2-3. The double-declining-balance method

We have:

Depreciation expense for 2020 = $7,300

Depreciation expense for 2021 = $5,475

3. See the journal entries below.

4. Net book value = $25,825

Explanation:

1. Calculate depreciation expense per mile under units-of-activity method.

Depreciation expense per mile = (Purchase price delivery truck - Expected salvage value) / Expected driven miles = ($29,200 - $2,200) / 100,000 = $0.27 per mile

2. 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.

2-1. The straight-line method

Annual depreciation expense = (Purchase price of the delivery truck - Expected salvage value) / Estimated useful life = ($29,200 - $2,200) / 8 = $3,375

Therefore, we have:

Depreciation expense for 2020 = Annual depreciation expense = $3,375

Depreciation expense for 2021 = Annual depreciation expense = $3,375

2-2. Units-of-activity method

Depreciable amount = Purchase price of the delivery truck - Expected salvage value = $29,200 - $2,200 = $27,000

Therefore, we have:

Depreciation expense for 2020 = Depreciable amount * (Actual miles driven in 2020 / Expected driven miles) = $27,000 * (16,100 / 100,000) = $4,347

Depreciation expense for 2021 = Depreciable amount * (Actual miles driven in 2021 / Expected driven miles) = $27,000 * (12,800 / 100,000) = $3,456

2-3. The double-declining-balance method

Straight-line method depreciation rate = 1 / Estimated useful life = 1 / 8 = 0.1250, or 12.50%

Double-declining-balance method depreciation rate = Straight-line method depreciation rate * 2 = 12.50% * 2 = 25%

Therefore, we have:

Depreciation expense for 2020 = Purchase price of the delivery truck * Double-declining-balance method depreciation rate = $29,200 * 25% = $7,300

Depreciation expense for 2021 = (Purchase price of the delivery truck - Depreciation expense for 2020) * Double-declining-balance method depreciation rate = ($29,200 - $7,300) * 25% = $5,475

3. Prepare the journal entry to record 2020 depreciation.

3-1. The straight-line method

Date       Particulars                                              Debit ($)          Credit ($)  

2020      Depreciation expense                            3,375

                Accumulated dep. – Delivery truck                                  3,375

             (To record 2020 depreciation expense.)                                          

3-2. Units-of-activity method

Date       Particulars                                              Debit ($)          Credit ($)  

2020      Depreciation expense                              4,347

                Accumulated dep. – Delivery truck                                 4,347

             (To record 2020 depreciation expense.)                                          

3-3. The double-declining-balance method

Date       Particulars                                              Debit ($)          Credit ($)  

2020      Depreciation expense                              7,300

                Accumulated dep. – Delivery truck                                 7,300

             (To record 2020 depreciation expense.)                                          

4. Assume that Marigold uses the straight-line method. Show how the truck would be reported in the December 31, 2020, balance sheet.

Tamarisk, Inc.

Balance sheet (Partial)

As at the Year Ended December 31, 2020

Details                                                    $                

Fixed Assets

Delivery truck                                   29,200

Accumulated depreciation               (3,375)  

Net book value                                 25,825  

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