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M6-16: Computing Depreciation

A delivery van costing $37,000 is expected to have a $2,900 salvage value at the end of its useful life of five years. Assume that the truck was purchased on Jan 1. Compute the depreciation expense for the first two calendar years under the straight-line depreciation method.

Depreciation Base:

Cost Salvage Value

37,000 2,900

= $34,100

Depreciation Rate:

1/Estimated useful life

=1/5 years

=20%

Depreciation Expense = $34,100 * 20% = $6,820 per year

Accumulated Depreciation Expense:

After 1^st year: $6,820 Delivery Van, net (end of Year 1): $27,280

After 2^nd year: $13,640 Delivery Van, net (end of Year 2): $20,460