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Assume you have just accepted a job that requires you to do a lot of driving. Be you have decided to purchase an automobile. You estimate that you will drive like to deal with major car repairs, you will trade in the car when it reaches 60,0 than three years). You have found two cars that you are considering. One is a new car (A), and yo

Assume you have just accepted a job that requires you to do a lot of driving. Be you have decided to purchase an automobile. You estimate that you will drive like to deal with major car repairs, you will trade in the car when it reaches 60,0 than three years). You have found two cars that you are considering. One is a new car (A), and yo

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Assume you have just accepted a job that requires you to do a lot of driving. Because your current car is on its "last leg," you have decided to purchase an automobile. You estimate that you will drive 20,000 miles each year. Because you don't like to deal with major car repairs, you will trade in the car when it reaches 60,000 miles (you will hold the car no more than three years). You have found two cars that you are considering. One is a new car (A), and you can purchase it for $27,000; it has a $6,000 residual value. The other is a late-model used car (B). The used car has 20,000 miles on it, but it is in excellent condition. The price of this used car is $12,000 and has a $2,000 residual value. Using the information presented (do not take into consideration which car is cheaper or the car's residual value, that is not the answer): What would be your depreciation cost per year for each car (using straight-line method)? Show your calculation in your response. Which car would give you the highest deduction annually? Would it be A or B? What would be the entry to record the first year's depreciation for one of the cars (either A or B)? Show the entry.
Transcribed Image Text:Assume you have just accepted a job that requires you to do a lot of driving. Because your current car is on its "last leg," you have decided to purchase an automobile. You estimate that you will drive 20,000 miles each year. Because you don't like to deal with major car repairs, you will trade in the car when it reaches 60,000 miles (you will hold the car no more than three years). You have found two cars that you are considering. One is a new car (A), and you can purchase it for $27,000; it has a $6,000 residual value. The other is a late-model used car (B). The used car has 20,000 miles on it, but it is in excellent condition. The price of this used car is $12,000 and has a $2,000 residual value. Using the information presented (do not take into consideration which car is cheaper or the car's residual value, that is not the answer): What would be your depreciation cost per year for each car (using straight-line method)? Show your calculation in your response. Which car would give you the highest deduction annually? Would it be A or B? What would be the entry to record the first year's depreciation for one of the cars (either A or B)? Show the entry.
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