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  • Jul 15, 2006, 07:56 PM
    mwg0121
    Depreciation
    Help! I have attempted to work these problems but all my answers are incorrect. Can someone show me how to work these?

    1. On January 1, 20X5, Better Realty purchased a $45,000 vehicle to chauffeur clients to prospective homes. Better plans on driving the vehicle for five years or 100,000 miles. Expected residual value is $10,000.
    The book value of the vehicle at the end of 20X5, after recording depreciation for the year using the straight-line method is:

    A. $28,000 B. $38,000 C. $36,000 D. $31,000

    In attempting to follow the example of the book, my attempt was:
    $45,000-10,000/5; my answer was $7,000.

    I then tried 45,000-2,000/5; my answer was $8600. I tried other numbers but
    none of them came close to the answer.

    2. On January 1, 20X5, Better Realty purchased a $45,000 vehicle to chauffeur clients to prospective homes. Better plans on driving the vehicle for five years or 10,000 miles. Expected residual value is $10,000.

    The 20X6 depreciation expense using the straight-line method is:

    A. $7,500 B. $8,750 C. $2,500 D. $7,000

    I selected D. $7,000 but I am unsure if that is correct.

    3. On January 1, 20X5, Better Realty purchased a $45,000 vehicle to chauffeur clients to prospective homes. Better plans on driving the vehicle for five years or 10,000 miles. Expected residual value is $10,000.

    Better Realty drove the vehicle 25,000 miles in 20X7. The depreciation expense for 20X7 using the units-of-production method is:

    A. $6,480 B. $2,850 C. $6,200 D. $8,750

    I attempted to answer this one: $45,000-10,000/25,000 mi = 1.4 but I could not figure out what I was supposed to multiply by 1.4.

    Help please!
  • Aug 18, 2006, 07:18 AM
    bigchickfromdabx
    $45000-$10000= $35000. $35000/60 months=$583 monthly depreciation. $583*12 months= $6996 yearly depreciation. $35000-$6996=$28004
    first answer is (a) $28000
    second answer is (d) $7000
  • Sep 14, 2006, 03:38 AM
    mh34
    Book value= Cost-Depreciation

    1 B $38,000

    $45,000-$10,000=$35,000/5=$7000 for a year of depreciation.

    $45,000-$7000= $38,000 book value

    Residual or salvage value is used to determine depreciation, and not book value.

    There is no need to divide by 12 because its for a whole year Jan through Dec.

    2. The answer is $7000 for depreciation for the whole year.

    3. D $8750 I believe you have the milage wrong for number of miles. You have 10,000, and there is no way you can do units of production method with a useful life of 10,000 miles, and you drove 25,000 miles. Check your homework because the miles are probably 100,000. All you have to do is take the miles driven 25,000 and divide by the useful life of 100,000 miles, and get a percentage of 25%. You take that 25% multiplied by $35,000, and get $8750, which is the depreciation for 2007.

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