Question

Speedy Express is a family operation that has been operating in Victoria for

many years. It purchased a new delivery truck on January 1, 2017, at a cost of

$50,000. As Speedy delivers over a wide area, considerable mileage will be

recorded on the truck each year. Speedy currently uses the straight line method

but is considering using the double declining-balance method based at twice the

straight line rate. Speedy expects the life of the truck to be five years at the end

of which there will be a salvage value of $5,000. Speedy has a December 31st

year-end.

Required

(a) Prepare a depreciation schedule that shows the annual depreciation expense

and carrying value for the delivery truck for its 5-year life for both the straight line

and double-diminishing balance method.

(b) The truck was sold on July 1, 2019 for $10,000. Calculate the gain or loss

under the

double diminishing balance

method and record the journal entry for the

sale

Answer 1

a. straight line depreciation = [50000 - 5000 ] / 5 = 9000

		depreciation expense	carrying value
	Dec 2017	9000	41000
	Dec 2018	9000	32000
	Dec 2019	9000	23000
	Dec 2020	9000	14000
	Dec 2021	9000	5000

b.

double-diminishing balance method = 1/5 * 2 = 40%

Depreciation schedule-Double declining
Year	Beginning Book Value	Depreciation rate	Annual Depreciation expense	Accumulated Depreciation	Ending Book Value
2017	50000	40.00%	$20000	$ 20000	$30000
2018	$ 30000	40.00%	$ 12,000	$ 32000	$18,000
2019	$ 18,000	40.00%	$ 7,200	$ 39,200	$ 10,800
2020	$ 10,800	40.00%	$ 4320	$ 43520	$6480
2021	$ 6480	40.00%	$ 1480	$ 45000	$ 5000

b.

	account	debit	credit
july 2019	cash	10,000
	loss on sale of equipment	4400
	accumulated depreciation	32000
	depreciation expense [7200*6/12]	3600
	Truck (equipment)		50000