Chapter 10, Problem 10.7E

(a)

(1)

To determine

Depreciation: Depreciation refers to a method of accounting under which the value of a fixed asset is written off during the life of that asset.

Straight Line Method: Under the straight line method, the value of the asset left after deduction of the salvage value is depreciated by same amount throughout the life of the asset.

Units-of-Activity Method: Under the units-of-activity method, the depreciation expense amount is calculated based on the units produced by the asset during the period.

Declining-Balance Method: Under the declining balance method, the depreciation is charged at the same rate every year but on the declined balance or the book value of the asset in the beginning of the year.

Journalizing: It is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the amounts are posted to the relevant ledger accounts.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Balance sheet: The balance sheet of a Company is the one of the most important financial statements because it shows the financial position of the Company.

Main components of balance sheet are assets, liabilities and stockholder’s equity are as expressed as in the following equation:

$\text{Assets }=\text{ Liabilities}+\text{Stockholders' equity}$

To determine: Depreciation expense for 2017 and 2018 under Straight-line method

(2)

To determine

Depreciation expense for 2017 and 2018 under Units-of-activity method

(3)

To determine

Depreciation expense for 2017 and 2018 under Declining-Balance Method

(b)

(1)

To determine

To prepare: On the basis of straight-line method, Journal entry for depreciation expense in 2017.

(2)

To determine

To prepare: On the basis of straight-line method, the presentation of truck in the balance sheet on December 31, 2017.