Question

1. Urban Pizza bought a used Ford delivery van on January​ 2, 2018​, for $ 23000. The van was expected to remain in service for four years left parenthesis 102000 ​miles). At the end of its useful​ life, Urban management estimated that the​ van's residual value would be $ 2600. The van traveled 40000 miles the first​ year, 33000 miles the second​ year, 18000 miles the third​ year, and 11000 miles in the fourth year.

Instructions:

Prepare a schedule of depreciation expense per year for the van under the three depreciation methods.​ (For units-of-production and​ double-declining-balance methods, round to the nearest two decimal places after each step of the​ calculation.)

Which method best tracks the wear and tear on the​ van?

Which method would Urban prefer to use for income tax​ purposes? Explain your reasoning in detail.

2. Barn Sales Company completed the following note payable​ transactions:

2018 Jul 1 Purchased delivery truck costing $ 6100 by issuing a​ one-year, 8% note payable. Dec 31 Accrued interest on the note payable. 2019 Jul 1 Paid the note payable at maturity.

1.How much interest expense must be accrued at December​ 31, 2018​? ​(Round your answer to the nearest whole​ dollar.)

2.Determine the amount of Barn ​Sales' final payment on July ​1, 2019.

3.How much interest expense will Barn Sales report for 2018 and for 2019​? ​(If needed, round your answer to the nearest whole​ dollar.)

Answer 1

A	Straight line depreciation
	Straight line depreciation
	=(Cost - residual value) / useful life = ($23000 - $2600) / 4 = $5100 per year
	Year	Depreciation
	1	$5,100
	2	$5,100
	3	$5,100
	4	$5,100
B	Depreciation rate under units of production method
	Depreciation rate under units of production method
	= (Cost - residual value) / Total miles running = ($23000 - $2600) / 102000 = $0.20 per mile
	Year	No.of miles	Depreciation
	1	$40,000	$8,000
	2	$33,000	$8250
	3	$18,000	$3,600
	4	$11,000	$2200
C	Depreciation under double declining balance method
	Depreciation under double declining balance method
	= 2 * straight line depreciation rate * book balance at the beginning of the year
	Straight line depreciation rate = $5100 / $(20400) = 25%
	Year	Depreciation	Book balance at the beginning
	0		$23,000
	1	$11,500	$11,500		(23000*2*.25)
	2	$5,750	$5,750		(11500*2*.25)
	3	$2,875	$2,875		(5750*2*.25)
	4	$1,437.50	$1,437.50		(2750*2*.25)

Which method best tracks the wear and tear on the​van? Units of production

Which method would Urban prefer to use for income tax​purposes? Explain your reasoning in detail. double declining method

Answer 2:

1.How much interest expense must be accrued at December​31, 2018​?

6100 * 8/100 * 6/12 = 244

2.Determine the amount of Barn ​Sales' final payment on July ​1, 2019. = 6100+244+244= 6588

3.How much interest expense will Barn Sales report for 2018 and for 2019​?

2018 = 244

2019 = 244