(Learning Objective 3: Determine depreciation amounts by three methods) PresleyPizza bought a used Ford delivery van on January 2, 2018, for $22,000. The van was expected toremain in service for four years (80,000 miles). At the end of its useful life, Presley managementestimated that the van’s residual value would be $2,000. The van traveled 32,000 miles the firstyear, 28,000 miles the second year, 15,000 miles the third year, and 5,000 miles in the fourth year.Requirements1. Prepare a schedule of depreciation expense per year for the van under the threedepreciation methods discussed in this chapter. (For units-of-production and doubledeclining-balance methods, round to the nearest two decimal places after each step of thecalculation.)2. Which method best tracks the wear and tear on the van?3. Which method would Presley prefer to use for income tax purposes? Explain yourreasoning in 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 Ford delivery van on January 2, 2018, for $22,000. The van was expected to
remain in service for four years (80,000 miles). At the end of its useful life, Presley management
estimated that the van’s residual value would be $2,000. The van traveled 32,000 miles the first
year, 28,000 miles the second year, 15,000 miles the third year, and 5,000 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 doubledeclining-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 Presley prefer to use for income tax purposes? Explain your
reasoning in detail.
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