Chapter 17, Problem 1ECP

To determine

The depreciation schedule by using the straight-line method and the given data.

Answer to Problem 1ECP

The depreciation expense taken each year is $\underset{\_}{\$3,300}$.

The Accumulated depreciation at the end of the year is $\underset{\_}{\$3,300}$.

The Book value at end of the year is $\underset{\_}{\$29,600}$.

Explanation of Solution

The data are as given below:

Given that the cost of Honda Accord hybrid is $\$32,900$, residual value is $\$6,500$, and estimated life is $8\text{years}$.

It is known that the straight-line method of depreciation is used more than any other method because it tries to distribute the same amount of expense to each period.

The formula for calculating the depreciation with the straight-line method is as follows:

$\text{Depreciation expense each years}=\frac{\text{ Cost}-\text{Residual value}}{\text{Estimated useful life in years}}$

Substitute, $\$32,900$ for cost, $\$6,500$ for residual value, and $8\text{years}$ for estimated life.

$\begin{array}{c}\text{ Depreciation expense each yeas}=\frac{\text{ 32,900}-6,500}{8}\\ =\frac{26,400}{8}\\ =3,300\end{array}$

Hence, the depreciation expense taken each year is $\underset{\_}{\$3,300}$.

Depreciation cost of equipment will be same for every year, depreciation expense is same each year, accumulated depreciation increased by $\$3,300$ each year.

Book value is lowered by $\$3,300$ i.e. $32,900-3,300=29,600$ unit residual value of $\$6,500$ is reached.

The following Table 1 shows the depreciation schedule by using the straight-line method, which is follows:

End of the year	Cost of Accord	Depreciation expense of the year	Accumulated depreciation at the end of the year	Book value at end of the year
1	$\$32,900$	$\$3,300$	$\$3,300$	$\begin{array}{c}\left(32,900-3,300\right)\\ =29,600\end{array}$

Table 1

Hence, the Accumulated depreciation at the end of the year is $\underset{\_}{\$3,300}$.

Hence, the Book value at end of the year is $\underset{\_}{\$29,600}$.