Instructions a. Compute the amount of accumulated depreciation on each bus at December 31, 2020. b. If Bus 2 was purchased on April 1 instead of January 1, what is the depreciation expense for this bus in (1) 2018 and (2) 2019?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
In recent years, Avery Transportation purchased three used buses. Because of frequent turnover in the accounting department, a diff erent accountant selected the
for each bus, and various methods were selected. Information concerning the buses is summarized
as follows.
Salvage Useful Life
Bus Acquired Cost Value in Years Depreciation Method
1 1/1/18 $ 96,000 $ 6,000 5 Straight-line
2 1/1/18 110,000 10,000 4 Declining-balance
3 1/1/19 92,000 8,000 5 Units-of-activity
For the declining-balance method, the company uses the double-declining rate. For the units-of-activity
method, total miles are expected to be 120,000. Actual miles of use in the fi rst 3 years were 2019, 24,000;
2020, 34,000; and 2021, 30,000.
Instructions
a. Compute the amount of
b. If Bus 2 was purchased on April 1 instead of January 1, what is the depreciation expense for this bus
in (1) 2018 and (2) 2019?
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