Question

Storm Delivery Company purchased a new delivery truck for $53,400 on April 1, 2016. The truck is expected to have a service life of 5 years or 150,000 miles and a residual value of $4,320. The truck was driven 8,200 miles in 2016 and 11,800 miles in 2017. Storm computes depreciation to the nearest whole month.

Required:

1. Compute depreciation expense for 2016 and 2017 using the
   For interim computations, carry amounts out to two decimal places. Round your final answers to the nearest dollar
   1. Sum-of-the-years'-digits method

      2016	$
      2017	$

   2. Activity method

      2016	$
      2017	$

2. For each method, what is the book value of the machine at the end of 2016? At the end of 2017?
   (Round your answers to the nearest dollar.)
   1. Sum-of-the-years'-digits method

      2016	$
      2017	$

   2. Activity method

      2016	$
      2017	$

Answer 1

Sum of the years' digits method

1+2+3+4+5 = 15

Depreciation of first year = depreciable value × 5/15

= 49,080 x 5/15

= 16,360

Depreciable value = cost - residual value

= 53,400 - 4,320

= 49,080

Depreciation for 2016 = 16,360 × 9/12

= 12,270

Book value for 2016 = cost - depreciation

= 53,400 - 12,270

= 41,130

Depreciation of 2017 = depreciable value × 4/15

   = 49,080 x 4/15

   = 13,088

Book value of 2017 = 41,130 - 13,088

= 28,042

Activity method

Depreciation rate = cost - residual value / life in miles

= 53,400 - 4,320 / 150,000

= 0.33 per mile

Depreciation for 2016 = 8,200 miles x 0.33

= 2,706

Book value for 2016 = cost - depreciation

= 53,400 - 2,706

= 50,694

Depreciation for 2016 = 11,800 miles x 0.33

= 3,894

Book value for 2017 = 50,694 - 3,894

= 46,800