Question

In: Accounting

On January 1st 2016 the Hail Company purchased a tractor for $120,000. This tractor is expected...

On January 1st 2016 the Hail Company purchased a tractor for $120,000. This tractor is expected to last 12 years and have a $2400 salvage value

Hail expects to drive the tractor 470400 miles .

In 2016 Hail drove the tractor 80,000 miles; in 2017 Hail drove the tractor 127,000 miles

Part 1: fill in the following table

2016

2017

2016

2017

dep exp

book value

straight line depreciation

double declining depreciation

units of activity depreciation

Part 2: On January 1st 2018 Hail sold the tractor for $62,000.

If Hail was using double declining balance depreciation, what gain or loss do they show on the sale?

Expert Solution

Part 1

Depreciation according to straight line method

Annual depreciation = (cost - salvage value) / estimated life = (120000-2400)/12 = 9800

Depreciation rate according to double declining balance

Depreciation rate = 1/ estimated life *2 = 1/12 *2 = 16.67%

2016 depreciation = 120000*16.67% = 20004

2017 depreciation = (120000-20004)*16.67% = 16669

Depreciation rate according to units of production

Depreciation rate = (cost - salvage value) / total estimated miles = (120000-2400)/470400 = 0.25 per mile

2016 depreciation = depreciation rate per mile * miles drove = 0.25*80000 = 20000

2017 Depreciation = 0.25*127000 = 31750

	2016	2017	2016	2017
	depreciation	depreciation	book value	book value
Straight line depreciation	9800	9800	110200 (120000-9800)	100400 (110200-9800)
Double declining depreciation	20004	16669	99996 (120000-20004)	83327 (99996-16669)
Unit of activity depreciation	20000	31750	100000 (120000-20000)	68250 (100000-31750)

Part 2

Selling price at the end of 2 years = 62000

Book value at the end of 2 years (according to double declining depreciation) = 83327

Book value is higher than selling price so there is loss.

Loss = book value - selling price =83327-62000 =21327

ekkarill92 answered 1 year ago

On January 1st 2016 the Snoke Company purchased 100 of the 1000 shares of The First...

On January 1st 2016 the Snoke Company purchased 100 of the 1000 shares of The First Order Company stock for $6000 At this time Snoke has no influence over The First Order. On July 1st The First Order paid a $1 per share dividend On December 31st The First order reported income for 2016 of $5000 and its stock was selling for $63 per share On January 2nd 2017 the Snoke Company purchased another 100 shares of The First Order...

On 1st January, 2016, a building materials manufacturing company in Oman purchased a farm land from...

On 1st January, 2016, a building materials manufacturing company in Oman purchased a farm land from the outskirts of Al Dhakliyah region. The cost of the property was OMR 675,000 and the company has made the settlement in full. The property tax of OMR 36,000 was due from the previous owner of the farm was paid by the company. All the legal costs relating to the acquisition of land was OMR 5,400. The old building in the farm land was...

reen Garden Company purchased a tractor at a cost of $240,000 on January 1, 2015. The...

reen Garden Company purchased a tractor at a cost of $240,000 on January 1, 2015. The tractor has an estimated residual value of $40,000 and an estimated life of 8 years. At the end of two years of service, Green Garden Co. reevaluated the tractor’s useful life. Management extended the useful life an additional four years, but estimated that the tractor would have no residual value at the end of this time. If the company uses straight-line depreciation, what amount...

A tractor for over-the-road hauling is to be purchased by AgriGrow for $78,000. It is expected...

A tractor for over-the-road hauling is to be purchased by AgriGrow for $78,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $3,200. Transportation cost savings are expected to be $130,000 per year; however, the cost of drivers is expected to be $50,000 per year, and operating expenses are expected to be $35,000 per year, including fuel, maintenance, insurance, and the like. The company’s marginal tax rate is 25...

A tractor for over-the-road hauling is purchased for $80,000.00. It is expected to be of use...

A tractor for over-the-road hauling is purchased for $80,000.00. It is expected to be of use to the company for 6 years, after which it will be salvaged for $3,600.00. Calculate the depreciation deduction and the unrecovered investment during each year of the tractors life. a. Use straight-line depreciation. Provide depreciation and book value for year 6. Depreciation for year 6 =? $ book value for year 6 =? $ b. Use declining-balance depreciation, with a rate that ensures the...

A tractor for over-the-road hauling is to be purchased by AgriGrow for $80,000. It is expected...

A tractor for over-the-road hauling is to be purchased by AgriGrow for $80,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $3,800. Transportation cost savings are expected to be $140,000 per year; however, the cost of drivers is expected to be $53,000 per year, and operating expenses are expected to be $47,000 per year, including fuel, maintenance, insurance, and the like. The company’s marginal tax rate is 25...

A tractor for over-the-road hauling is to be purchased by AgriGrow for $90,000. It is expected...

A tractor for over-the-road hauling is to be purchased by AgriGrow for $90,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $4,000. Transportation cost savings are expected to be $170,000 per year; however, the cost of drivers is expected to be $70,000 per year, and operating expenses are expected to be $63,000 per year, including fuel, maintenance, insurance, and the like. The company’s marginal tax rate is 40...

A tractor for over-the-road hauling is purchased for $75,000.00. It is expected to be of use...

A tractor for over-the-road hauling is purchased for $75,000.00. It is expected to be of use to the company for 6 years, after which it will be salvaged for $3,200.00. Calculate the depreciation deduction and the unrecovered investment during each year of the tractors life. a. Use straight-line depreciation. Provide depreciation and book value for year 6. b. Use declining-balance depreciation, with a rate that ensures the book value equals the salvage value. Provide depreciation and book value for year...

A tractor for over-the-road hauling is purchased for $90,000. It is expected to be of use...

A tractor for over-the-road hauling is purchased for $90,000. It is expected to be of use to the company for 6 years, after which it will be salvaged for $4,000. Calculate the depreciation deduction and the unrecovered investment during each year of the tractor's life. Use double declining balance switching to straight line depreciation. Please show excel equations if excel is used!

Surplus Warehouse purchased a forklift on January 1, 2016, for $12,000. The forklift is expected to...

Surplus Warehouse purchased a forklift on January 1, 2016, for $12,000. The forklift is expected to last for five years and have a residual value of $1,200. Surplus Warehouse uses the double-declining-balance method for depreciation. a. Calculate the depreciation expense, accumulated depreciation, and book value for each year of the forklift’s life. Round any depreciation calculations to the nearest dollar. Year Annual Depreciation Accumulated Depreciation Book Value 2016 $ $ $ 2017 2018 2019...