You are thinking of buying a van that will be used only for business. The cost of the van is estimated at $39,145. You would spend an additional $2,725 to have the van painted. In addition, you want the back seat of the van removed so that she will have lots of room to transport your mixer inventory as well as your catering supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,330. You expect the van to last about 5 years, and you expect to drive it for 200,000 miles. The annual cost of vehicle insurance will be $2,500. You estimate that at the end of the 5-year useful life the van will sell for $7,200. Assume that you will buy the van on August 15, 2021, and it will be ready for use on September 1, 2021. You are concerned about the impact of the van’s cost on your income statement and balance sheet. You will need to calculate the van’s depreciation. Required part C Determine the cost of the van. Prepare three depreciation tables for 2021, 2022, and 2023: one for straight-line depreciation, one for double-declining balance depreciation, and one for units-of-activity depreciation. For units-of-activity, you estimate you will drive the van as follows: 15,000 miles in 2021; 50,000 miles in 2022; 50,000 miles in 2023; 45,000 miles in 2024; 40,000 miles in 2025. Recall that your business has a December 31 year-end. What impact will the three methods of depreciation have on your business’ balance sheet at December 31, 2021? What impact will the three methods have on your income statement in 2021?
You are thinking of buying a van that will be used only for business. The cost of the van is estimated at $39,145. You would spend an additional $2,725 to have the van painted. In addition, you want the back seat of the van removed so that she will have lots of room to transport your mixer inventory as well as your catering supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,330. You expect the van to last about 5 years, and you expect to drive it for 200,000 miles. The annual cost of vehicle insurance will be $2,500. You estimate that at the end of the 5-year useful life the van will sell for $7,200. Assume that you will buy the van on August 15, 2021, and it will be ready for use on September 1, 2021. You are concerned about the impact of the van’s cost on your income statement and balance sheet. You will need to calculate the van’s depreciation. Required part C Determine the cost of the van. Prepare three depreciation tables for 2021, 2022, and 2023: one for straight-line depreciation, one for double-declining balance depreciation, and one for units-of-activity depreciation. For units-of-activity, you estimate you will drive the van as follows: 15,000 miles in 2021; 50,000 miles in 2022; 50,000 miles in 2023; 45,000 miles in 2024; 40,000 miles in 2025. Recall that your business has a December 31 year-end. What impact will the three methods of depreciation have on your business’ balance sheet at December 31, 2021? What impact will the three methods have on your income statement in 2021?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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You are thinking of buying a van that will be used only for business. The cost of the van is estimated at $39,145. You would spend an additional $2,725 to have the van painted. In addition, you want the back seat of the van removed so that she will have lots of room to transport your mixer inventory as well as your catering supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,330. You expect the van to last about 5 years, and you expect to drive it for 200,000 miles. The annual cost of vehicle insurance will be $2,500. You estimate that at the end of the 5-year useful life the van will sell for $7,200. Assume that you will buy the van on August 15, 2021, and it will be ready for use on September 1, 2021.
You are concerned about the impact of the van’s cost on your income statement and balance sheet. You will need to calculate the van’s depreciation.
Required part C
- Determine the cost of the van.
- Prepare three depreciation tables for 2021, 2022, and 2023: one for straight-line depreciation, one for double-declining balance depreciation, and one for units-of-activity depreciation. For units-of-activity, you estimate you will drive the van as follows: 15,000 miles in 2021; 50,000 miles in 2022; 50,000 miles in 2023; 45,000 miles in 2024; 40,000 miles in 2025. Recall that your business has a December 31 year-end.
- What impact will the three methods of depreciation have on your business’ balance sheet at December 31, 2021? What impact will the three methods have on your income statement in 2021?
- What impact will the three methods of depreciation have on your income statement over the van’s total 5-year useful life?
- What method of depreciation would you use and why?
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