Two Brother's Moving Company purchased a group of new moving trucks for a total amount of $125,000....

Question

Two Brother's Moving Company purchased a group of new moving trucks for a total amount of $125,000. The vehicles are expected to last five years due to the heavy use and have a residual/scrap/salvage value of $10,000 at the end of that life. Usage of the vehicle is tracked in miles and the vehicles in total are expected to last 2,000,000 miles. During year one 750,000 miles were used, during year two 600,000 miles were used, during year three 500,000 miles were used, during year four no miles were used due to a temporary closing of the moving line of business, and during year five 150,000 miles were used. Using the depreciation template provided, determine the amount of depreciation expense for the third year under each of the following assumptions:The company uses the straight-line method of depreciation.The company uses the units-of-production method of depreciation.The company uses the double-declining-balance method of depreciation.Assuming straight line depreciation, prepare the journal entry for the third year.Assume the company sold the vehicles at the end of the fourth year for $50,000. Prepare a journal entry for asset disposal in the fourth year.Assume you are the chief accountant of this company. Determine how you will choose, based on best industry practices, the depreciation method for them to use.

Rishi · Accepted Answer

Straight-Line Depreciation
	ACT300 Principles of Accoutning I
	Module 6: Critical Thinking Template Option 1 (Depreciation Template)
	Straight-Line Depreciation					Input amounts 					Record journal entry for depreciation expense for the third year:
	Cost	$125,000
	Salvage value	$10,000											Debit	Credit
	Depreciable cost	$115,000									Dec. 31	Depreciation Expense	$23,000
	Useful life 	5	Years									      Accumulated Depreciation - Equipment		$69,000
	Useful life in units of production	2,000,000	Miles									To record annual depreciation
											Record journal entry for asset disposal in the fourth year:
	Straight line method
	Formula 	Cost - Salvage Value *		* Depreciable cost = Cost - Salvage Value									Debit	Credit
		Useful life in years									Dec. 31	Cash	$50,000
												Accumulated Depreciation	$92,000
	=	(125000-10000)/5										Loss on disposal	0
												       Equipment		$125,000
												       Profit on disposal		17,000
												To record disposal of equipment
	Annual depreciation expense=	23,000
	Also, compute the straight line depreciation rate.  The formula is 100% divided by the useful life in years
	Compute the straight line depreciation rate below:
		100%
		5
	Straight line depreciation rate	0.20
		Depreciation for the Period				End of Period
	Annual period	Depreciable Cost	Depreciation rate	Depreciation Expense		Accumulated Depreciation	Book Value
							$125,000	*
	Year 1	$115,000	20%	$23,000		$23,000	102,000
	Year 2	102,000	20%	$23,000		$46,000	79,000
	Year 3	79,000	20%	$23,000		$69,000	56,000
	Year 4	56,000	20%	$23,000		$92,000	33,000
	Year 5	33,000	20%	$23,000		$115,000	10,

Two Brother's Moving Company purchased a group of new moving trucks for a total amount of $125,000. The vehicles are expected to last five years due to the heavy use and have a residual/scrap/salvage...

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