University Car Wash Built A Deluxe Car Wash Across The Stree
University Car Wash Built A Deluxe Car Wash Across The Street From Cam
University Car Wash built a deluxe car wash across the street from campus. The new machines cost $240,000 including installation. The company estimates that the equipment will have a residual value of $30,000. University Car Wash also estimates it will use the machine for six years or about 12,000 total hours. Actual use per year was as follows: Year Hours used 1 2,,,,,,700
Prepare a depreciation schedule for six years using the straight-line method. (Do not round intermediate calculations. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)
Paper For Above instruction
Depreciation accounting plays a vital role in accurately reflecting the decreasing value of an asset over its useful life. When a company invests in substantial machinery or equipment, understanding and applying the appropriate depreciation method ensures that financial statements represent a realistic view of the asset's worth and the company's financial position. In this context, University Car Wash's recent acquisition of a deluxe car wash machine necessitates a methodical approach to depreciation calculation, specifically using the straight-line method, which allocates an equal amount of depreciation expense across each year of the asset's useful life.
The initial cost of the equipment is $240,000, with an estimated residual (salvage) value of $30,000 after its six-year useful life. The total depreciable amount, therefore, is the cost minus the residual value, calculated as $240,000 - $30,000 = $210,000. This is the total amount to be depreciated over the asset's useful life. The straight-line depreciation method distributes this amount evenly across each year, regardless of variations in actual usage, aligning with accounting principles that promote simplicity and consistency.
To determine the annual depreciation expense, we divide the total depreciable amount by the useful life in years: $210,000 / 6 years = $35,000 per year. This depreciation expense remains consistent annually, simplifying accounting records and financial reporting. The following depreciation schedule illustrates the accumulated depreciation and book value of the equipment over the six-year period:
| Year | Depreciable Cost | Depreciation Rate | Depreciation Expense | Accumulated Depreciation | Book Value |
|---|---|---|---|---|---|
| 1 | 210,000 | 16.67% | 35,000 | 35,000 | 205,000 |
| 2 | 210,000 | 16.67% | 35,000 | 70,000 | 170,000 |
| 3 | 210,000 | 16.67% | 35,000 | 105,000 | 135,000 |
| 4 | 210,000 | 16.67% | 35,000 | 140,000 | 100,000 |
| 5 | 210,000 | 16.67% | 35,000 | 175,000 | 65,000 |
| 6 | 210,000 | 16.67% | 35,000 | 210,000 | 30,000 |
In this schedule, the depreciation rate is calculated as (Depreciation expense / depreciable cost) 100 = ($35,000 / $210,000) 100 ≈ 16.67%. The accumulated depreciation increases each year by the annual depreciation expense, reducing the book value of the asset accordingly, until it reaches its residual value at the end of six years. This systematic approach ensures the financial statements reflect the declining benefit of the equipment accurately and consistently over its lifetime.
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