(Learning Objective 3: Determine depreciation amounts by three methods) LimaPizza bought a used Toyota delivery van on January 2, 2018, for $18,600. The van wasexpected to remain in service for four years (57,000 miles). At the end of its useful life, Limamanagement estimated that the van’s residual value would be $1,500. The van traveled 20,500miles the first year, 16,000 miles the second year, 15,400 miles the third year, and 5,100 milesin the fourth year.Requirements1. Prepare a schedule of depreciation expense per year for the van under the three depreciationmethods discussed in this chapter. (For units-of-production and double-declining-balancemethods, round to the nearest two decimal places after each step of the calculation.)2. Which method best tracks the wear and tear on the van?3. Which method would Lima prefer to use for income tax purposes? Explain your reasoningin detail.
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.
(Learning Objective 3: Determine
Pizza bought a used Toyota delivery van on January 2, 2018, for $18,600. The van was
expected to remain in service for four years (57,000 miles). At the end of its useful life, Lima
management estimated that the van’s residual value would be $1,500. The van traveled 20,500
miles the first year, 16,000 miles the second year, 15,400 miles the third year, and 5,100 miles
in the fourth year.
Requirements
1. Prepare a schedule of depreciation expense per year for the van under the three depreciation
methods discussed in this chapter. (For units-of-production and double-declining-balance
methods, round to the nearest two decimal places after each step of the calculation.)
2. Which method best tracks the wear and tear on the van?
3. Which method would Lima prefer to use for income tax purposes? Explain your reasoning
in detail.
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