Carter Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store’s operations follow: -Sales are budgeted at $380,000 for N

1. Straight-line depreciation method: Annual depreciation = (Cost - Salvage value) / Service life in years = ($49,000 - $14,500) / 5 = $6,700 Year 1 end book value = $49,000 - $6,700 = $42,300 Year 2 end book value = $42,300 - $6,700 = $35,600 Year 3 end book value = $35,600 - $6,700 = $28,900 Year 4 end book value = $28,900 - $6,700 = $22,200 Year 5 end book value = $22,200 - $6,700 = $15,500 Explanation: Straight-line depreciation assumes that the asset depreciates evenly over its useful life. In this case, the annual depreciation expense is calculated by dividing the cost of the van minus its estimated salvage value (what it is expected to be worth at the end of its useful life) by the number of years of service life. Each year, the depreciation expense is subtracted from the previous year's book value to get that year's end book value. 2. Activity-based depreciation method: Annual depreciation = (Cost - Salvage value) x Actual miles in year / Est. total miles over service life = ($49,000 - $14,500) x Actual miles in year / 138,000 Year 1 depreciation = ($49,000 - $14,500) x 31,000 / 138,000 = $8,660 Year 2 depreciation = ($49,000 - $14,500) x 25,000 / 138,000 = $6,402 Year 3 depreciation = ($49,000 - $14,500) x 27,000 / 138,000 = $6,986 Year 4 depreciation = ($49,000 - $14,500) x 30,000 / 138,000 = $7,782 Year 5 depreciation = ($49,000 - $14,500) x 29,000 / 138,000 = $7,670 Year 1 end book value = $49,000 - $8,660 = $40,340 Year 2 end book value = $40,340 - $6,402 = $33,938 Year 3 end book value = $33,938 - $6,986 = $26,952 Year 4 end book value = $26,952 - $7,782 = $19,170 Year 5 end book value = $19,170 - $7,670 = $11,500 Explanation: The activity-based depreciation method assumes that the asset depreciates based on its usage, which is reflected in the number of miles it is driven. The annual depreciation expense is calculated by multiplying the cost of the van minus its estimated salvage value by the actual miles driven in each year, and then dividing that by the estimated total miles over the service life. Each year, the depreciation expense is subtracted from the previous year's book value to get that year's end book value. In this case, the actual total miles exceeded the estimated total miles by 4,000 miles, which resulted in a slightly lower annual depreciation expense and end book value for each year.