Question

4. “Go-Pack-Go!” Inc. a small corporation located in Marshall Michigan purchased a 2019 custom-designed GREEN & YELLOW Ford Truck for $64,000 in order for the owners to “ride-in-style” to all “Pack” games as the Packers win the division, sweep the playoffs and bring the Lombardi Trophy back home (again).

The truck has a five-year estimated useful life, an estimated salvage value of $4,000 and potentially 250,000 miles. Please compute the annual depreciation using the following methods.

1. Use the mileage method and assume the truck was driven 53,220 miles this year.

2. Use the straight-line method for this year.

3. Use the double-declining balance (DDB) method for this year.

4. Using the straight-line method, assume the firm sold the van at the end of year 3 for $10,000. Compute and give me the journal entry for the sale of fixed asset.

Answer 1

Annual depreciation using the mileage method = $ ( 64,000 - 4,000 ) / 250,000 miles * 53,220 miles = $ 127,728

Annual depreciation using the straight-line method = $ ( 64,000 - 4,000 ) / 5 years = $ 12,000

Annual depreciation using the double-declining balance method = $ 64,000 x 40 % = $ 25,600

Double declining rate = Straight-line rate of depreciation x 2 = 100 / 5 * 2 = 40 %

At the end of year 3, accumulated depreciation = $ 12,000 x 3 = $ 36,000

Book value of the asset = $ 64,000 - $ 36,000 = $ 28,000

Profit (loss) on sale = $ 10,000 - $ 28,000 = $ ( 18,000 )

Date	General Journal	Debit	Credit
		$	$
End of Year 3	Cash	10,000
	Accumulated Depreciation	36,000
	Loss on Sale of Truck	18,000
	Truck		64,000