Dexter Delivery Services has a December 31, 2014 year end. On January 1, 2014, Dexter has a delivery van with a cost of $35,000 and accumulated depreciation of $12,000. The van was expected to have a residual value of $5,000 and a useful life of 5 years. Dexter uses straight-line depreciation. Dexter plans to replace its delivery van on April 1, 2014 and is considering two alternatives. The Van has a fair Value of $22000. 1. Dexter has been offered $14,000 for the old van. If Dexter accepts this offer, Dexter will then purchase a replacement for $50,000 cash. 2. Trade the old van for a new one. The dealer will allow a $22,000 trade-in allowance which is fair value on the old van, and Dexter will have to pay additional cash of $28,000. Instructions a. Record the required depreciation adjustment on the old van to April 1, 2014. b. Record the disposal of the van under each of the two alternatives. c. Which alternative do you recommend and why?

Dexter Delivery Services has a December 31, 2014 year end. On January 1, 2014, Dexter has a delivery van with a cost of $35,000 and accumulated depreciation of $12,000. The van was expected to have a residual value of $5,000 and a useful life of 5 years. Dexter uses straight-line depreciation. Dexter plans to replace its delivery van on April 1, 2014 and is considering two alternatives. The Van has a fair Value of $22000. 1. Dexter has been offered $14,000 for the old van. If Dexter accepts this offer, Dexter will then purchase a replacement for $50,000 cash. 2. Trade the old van for a new one. The dealer will allow a $22,000 trade-in allowance which is fair value on the old van, and Dexter will have to pay additional cash of $28,000. Instructions a. Record the required depreciation adjustment on the old van to April 1, 2014. b. Record the disposal of the van under each of the two alternatives. c. Which alternative do you recommend and why?

Name: Dexter Delivery Services has a December 31, 2014 year end. On January
Uploaded: 2024-03-05T11:50:36.000Z
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Description: Dexter Delivery Services has a December 31, 2014 year end. On January 1, 2014, Dexter has adelivery van with a cost of $35,000 and accumulated depreciation of $12,000. The van wasexpected to have a residual value of $5,000 and a useful life of 5 yea

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

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Dexter Delivery Services has a December 31, 2014 year end. On January 1, 2014, Dexter has a
delivery van with a cost of $35,000 and accumulated depreciation of $12,000. The van was
expected to have a residual value of $5,000 and a useful life of 5 years. Dexter uses straight-line
depreciation. Dexter plans to replace its delivery van on April 1, 2014 and is considering two
alternatives. The Van has a fair Value of $22000.
1. Dexter has been offered $14,000 for the old van. If Dexter accepts this offer, Dexter will
then purchase a replacement for $50,000 cash.
2. Trade the old van for a new one. The dealer will allow a $22,000 trade-in allowance which
is fair value on the old van, and Dexter will have to pay additional cash of $28,000.
Instructions
a. Record the required depreciation adjustment on the old van to April 1, 2014.
b. Record the disposal of the van under each of the two alternatives.
C.
Which alternative do you recommend and why?

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