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In: Accounting

Natalie is also thinking of buying a van that will be used only for business. The...

Natalie is also thinking of buying a van that will be used only for business. The cost of the van is estimated at $38,500. Natalie would spend an additional $2,500 to have the van painted. In addition, she wants the back seat of the van removed so that she will have lots of room to transport her mixer inventory as well as her baking supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,500. She expects the van to last her about 5 years, and she expects to drive it for 100,000 miles. The annual cost of vehicle insurance will be $2,400. Natalie estimates that at the end of the 5-year useful life the van will sell for $6,500. Assume that she will buy the van on August 15, 2015, and it will be ready for use on September 1, 2015. Natalie is concerned about the impact of the van’s cost on her income statement and balance sheet. She has come to you for advice on calculating the van’s depreciation. (what impact will the three methods of depreciation on Natalie's balance sheet at December 31 2017)

Straight Line Double Declining Balance Units of Activity
Cost of Asset
Accumulated Depreciation
Net Book Value
Depreciation Expense

Lowest amount of net income =

Lowest amount of owner's equity=

Lowest net book value =

Greatest amount of net income =

Greatest amount of owner's equity=

Greatest net book value =

Solutions

Expert Solution

Straight Line Double Declining Balance Units of Activity
Cost of Asset             42,500                                         42,500                    42,500
Accumulated Depreciation             16,800                                         29,240                    16,800
Net Book Value             25,700                                         13,260                    25,700
Depreciation Expense               7,200                                           8,840                       7,200

Please note for Unit of Activity Depreciation the activity per year is not given in the question. So I have assumed it to be equal every year. If no please comment will unit of Activity per (No. of miles driven each year) so that i can help you give correct Depreciation.

Cost of Van          38,500
Paint            2,500
Back Seat Change            1,500
Total Cost of Van          42,500
Salvage Value            6,500
Depreciable Amount          36,000
Straight Line Depreciation-2015            2,400
Straight Line Depreciation-2016            7,200
Straight Line Depreciation-2016            7,200
Accumulated Depreciation          16,800
Double Declining Balance
Total Cost of Van          42,500
Double Declining Rate 40%
Depreciation-2015            5,667
WDV-2015          36,833
Depreciation-2016          14,733
WDV-2016          22,100
Depreciation-2017            8,840
WDV-2017          13,260
Units of Activity
Total Cost of Van          42,500
Salvage Value            6,500
Depreciable Amount          36,000
Total Miles       100,000
Miles Each Year-2015            6,667
Miles Each Year-2016          20,000
Miles Each Year-2017          20,000
Depreciation-2015            2,400
Depreciation-2016            7,200
Depreciation-2017            7,200
Lowest amount of net income = Double Declining Balance
Lowest amount of owner's equity= Double Declining Balance
Lowest net book value = Straight Line & Units of Activity
Greatest amount of net income = Straight Line & Units of Activity
Greatest amount of owner's equity= Straight Line & Units of Activity
Greatest net book value = Straight Line & Units of Activity

Please note that the above answers will change if you give the details of Units of Activity.


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