Question

In: Accounting

Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....

Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $15,000. They expect to use the Suburban for five years and then sell the vehicle for $6,000. The following expenditures related to the vehicle were also made on July 1, 2022:

  • The company pays $2,550 to GEICO for a one-year insurance policy.
  • The company spends an extra $6,000 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides.
  • An additional $2,750 is spent on a deluxe roof rack and a trailer hitch.

The painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures. In addition, on October 22, 2022, the company pays $1,900 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter.

Great Adventures Problem AP7-1 Part 3

3. Prepare a depreciation schedule using the straight-line method.
  

OS Environmental provides cost-effective solutions for managing regulatory requirements and environmental needs specific to the airline industry. Assume that on July 1 the company issues a one-year note for the amount of $5.4 million. Interest is payable at maturity.  

Required:

OS Environmental provides cost-effective solutions for managing regulatory requirements and environmental needs specific to the airline industry. Assume that on July 1 the company issues a one-year note for the amount of $5.4 million. Interest is payable at maturity.  

Required:

Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions: (Enter your answers in dollars, not in millions (i.e. 5 should be entered as 5,000,000).)

11% ar DEcember 31

8% at September 30

10% at October 31

7% at January 32

Solutions

Expert Solution

  • Depreciation scheduled straight line method:
  • Purchase price $ 15,000
    Add:painting of asset $ 6,000
    Add:deluxe roof back $ 2,750
    Cost of new vehicle $ 23,750
    Depreciable cost($23,750-$6,000) $ 17,750

Straight line depreciation schedule:

Date cost depreciable cost useful life depreciable rate depreciable expense accumulated depreciation Book value
Year 1-6 months $23,750 $17,750 5 years 0.10 $1,775 $1,775 $21,975
Year 2 $23,750 $17,750 5 years 0.20 $3,550 $5,325 $18,425
Year 3 $23,750 $17,750 5 years 0.20 $3,550 $8,875 $14,875
Year 4 $23,750 $17,750 5 years 0.20 $3,550 $12,425 $11,325
Year 5 $23,750 $17,750 5 years 0.20 $3,550 $15,975 $7,775
Year 6-6 months $23,750 $17,750 5 years 0.10 $1,775 $17,750 $6,000

Solution 2:

Interest expense is calculated as below:

1 2 3 4
Interest rate 11% 8% 10% 7%
Fiscal year end December 31 september 30 October 31 January 31
Interst expense

$220,000

($4,000,000*6/12*11%)

$80,000

($4,000,000*3/12*8%)

$133,333

($4,000,000*4/12*10%)

$163,333

($4,000,000*7/12*7%)


Related Solutions

Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $8,800. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,400 per year. The paint is starting to fade, so they spend an extra $2,200 to repaint the vehicle, placing the Great Adventures logo on the front hood,...
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $8,800. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,400 per year. The paint is starting to fade, so they spend an extra $2,200 to repaint the vehicle, placing the Great Adventures logo on the front hood,...
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $12,000. They expect to use the Suburban for five years and then sell the vehicle for $4,500. The following expenditures related to the vehicle were also made on July 1, 2022: The company pays $1,800 to GEICO for a one-year insurance policy. The company spends an extra $3,000 to repaint the vehicle,...
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $12,000. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,800 per year. The paint is starting to fade, so they spend an extra $3,000 to repaint the vehicle, placing the Great Adventures logo on the front hood,...
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $12,000. They expect to use the Suburban for five years and then sell the vehicle for $4,500. The following expenditures related to the vehicle were also made on July 1, 2022: The company pays $1,800 to GEICO for a one-year insurance policy. The company spends an extra $3,000 to repaint the vehicle,...
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $12,000. They expect to use the Suburban for five years and then sell the vehicle for $4,500. The following expenditures related to the vehicle were also made on July 1, 2022: The company pays $1,800 to GEICO for a one-year insurance policy. The company spends an extra $3,000 to repaint the vehicle,...
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $10,000. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,550 per year. The paint is starting to fade, so they spend an extra $2,500 to repaint the vehicle, placing the Great Adventures logo on the front hood,...
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $15,400. They expect to use the Suburban for five years and then sell the vehicle for $6,200. The following expenditures related to the vehicle were also made on July 1, 2022: The company pays $2,650 to GEICO for a one-year insurance policy. The company spends an extra $6,400 to repaint the vehicle,...
Tony and Suzie see the need for a rugged all-terrain vehicle totransport participants and supplies....
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $15,600. They expect to use the Suburban for five years and then sell the vehicle for $6,300. The following expenditures related to the vehicle were also made on July 1, 2022:The company pays $2,700 to GEICO for a one-year insurance policy.The company spends an extra $6,600 to repaint the vehicle, placing the...
[The following information applies to the questions displayed below.] Tony and Suzie see the need for...
[The following information applies to the questions displayed below.] Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $13,400. They expect to use the Suburban for five years and then sell the vehicle for $5,200. The following expenditures related to the vehicle were also made on July 1, 2022: The company pays $2,150 to GEICO for a one-year insurance policy. The...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT