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```					ACCOUNTING: What the Numbers Mean, 8e
Chapter 6 Exercise 6.8                                             Name: Enter Name

Step 1:       Review General
Instructions                                              Complete the problem
requirements by
entering appropriate
Step 2:        Review
dollar amounts or
Worksheet                              worksheet cells

Step 3:   Complete
Analysis
Worksheet

Step 4:            Respond to
"What the Numbers Mean"
Worksheet
ACCOUNTING: What the Numbers Mean, 8e
Chapter 6 Exercise 6.8                                                               Name: Enter Name

Problem Description:
Kleener Co. acquired a new delivery truck at the beginning of its current fiscal year. The truck cost \$26,000 and
has an estimated useful life of four years and an estimated salvage value of \$4,000.

Instructions:

Please proceed to the "Analysis" worksheet and complete the basic problem requirements. Complete the problem
requirements by entering appropriate amounts or formulas in shaded worksheet cells:

a. Calculate depreciation expense for each year of the truck's life using:
1. Straight-line depreciation.
2. Double-declining-balance depreciation.
b. Calculate the truck's net book value at the end of its third year of use under each depreciation method.

After completing the "Analysis" worksheet, please proceed to the "What the Numbers Mean" worksheet and respond

c. Assume that Kleener Co. had no more use for the truck after the end of the third year and that at the beginning
of the fourth year it had an offer from a buyer who was willing to pay \$6,200 for the truck. Should the depreciation
method used by Kleener Co. affect the decision to sell the truck?
ACCOUNTING: What the Numbers Mean, 8e
Chapter 6 Exercise 6.8                                                                                                       Enter Name

Complete the Modeling:
a. Calculate depreciation expense for each year of the truck's life using:
1. Straight-line depreciation.
2. Double-declining-balance depreciation.

b. Calculate the truck's net book value at the end of its third year of use under each depreciation method.
1. Straight-line depreciation.
2. Double-declining-balance depreciation.

shown in the yellow shaded boxes until you have completed each of the grey boxes. The
amounts shown in the yellow boxes will be recalculated automatically.

Shortcut method using Excel functions ( f x) :

a. DEPRECIATION EXPENSE (for each method)

PERIOD                              SLN                   PERIOD                       DDB
1                                                         1
2                                                         2
3                                                         3
4                                                         4
b. NET BOOK VALUE AT END
\$ 26,000.00                                        \$ 26,000.00
OF YEAR 3

Now that you know what the results should be, lets see if you can put it together yourself without all
of the help from Excel.

Detailed Modeling:

Straight line:
a. DEPRECIATION EXPENSE             =     (    COST          -    SALVAGE       )      /    USEFUL LIFE

Input:                              -                         /

Result:     =

Note: Under straight line, the results are the same for all four years.

b. NET BOOK VALUE AT                =     (    COST          -   ACCUMULATED DEPRECIATION                   )
THE END OF YEAR 3

Input:     =             \$0.00      -

Result:     =             \$0.00

Double Declining Balance:

Preliminary Step:         Calculate double declining rate = 200% X Straight-line rate.
In this case the straight-line rate would be 25% (100% / 4 years).
The double declining rate would therefore be 50% (25% X 2).

Hint:         Accumulated depreciation cannot exceed an amount that would cause the net book value of
the truck to be reduced beneath its salvage value of \$4,000.
a. DEPRECIATION EXPENSE        =       (       COST          -     ACCUMULATED         )   X   DOUBLE DECLINING
DEPRECIATION                     RATE
(beginning of year)

Year 1 Input:       (                         -             0           )   X         50%

Year 1 Calculated Result:   =                   \$0.00
Year 1 Final Result:                   (\$4,000.00)

Year 2 Input:       (               \$0.00     -                         )   X         50%

Year 2 Calculated Result:   =                   \$0.00
Year 2 Final Result:                   (\$4,000.00)

Year 3 Input:       (               \$0.00     -                         )   X         50%

Year 3 Calculated Result:   =                   \$0.00
Year 3 Final Result:                   (\$4,000.00)

Year 4 Input:       (               \$0.00     -                         )   X         50%

Year 4 Calculated Result:   =                   \$0.00
Year 4 Final Result:                   (\$4,000.00)

b. NET BOOK VALUE              =           (     COST        -     ACCUMULATED         )
DEPRECIATION

Input:   =                             -

Result:   =                   \$0.00
ACCOUNTING: What the Numbers Mean, 8e
Chapter 6 Exercise 6.8                                                                       Name: Enter Name

What does it mean? Question 1:
c. Assume that Kleener Co. had no more use for the truck after the end of the third year and that at the beginning
of the fourth year it had an offer from a buyer who was willing to pay \$6,200 for the truck. Should the depreciation
method used by Kleener Co. affect the decision to sell the truck?

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