Q#14: Keep each W&T depreciation scenario separate and do not combine facts, carefully read each problem, as facts can change. On May 1, 20X2, Whiskers & Tails, Inc. buys an airconditioned RV (i.e., a recreational vehicle AKA motor home) to use as an add on service option for clients. The motor home cost W&T $75,000 to purchase. There is high demand for the posh motor home and the company bills out the RV to clients at $125 per hour. In 20X2, at the time of purchase, the company estimated they will use the RV for 8 years and assigned it a 20% residual value. W&T initially expected to use the camper 3,000 hours in total over the eight-year estimated life but then ended up selling the RV on October 1, 20X6 before the 8 years was over. The below table summarizes the company's actual use of the RV (at customer events): 20X2 20X3 20X4 20X5 20X6 Total Actual Hours of Use Per Year 250 310 440 380 320 1,700 Cumulative 250 560 1,000 1,380 1,700 Assume W&T sells the RV on October 1, 20X6 for a selling price of $42,000. Please consider the gain or loss realized under both the straight-line and the units-of-production depreciation methods and select the true answer choice below. Do not round intermediate calculations but do round your final answer to the nearest $1. A. W&T would realize a gain and the gain realized would be $875 higher under units of production as compared to straight line. B. W&T would realize a gain and the gain realized would be $1,625 higher under straight line as compared to units of production. C. Because the depreciable base of the asset is the same, the gain realized under straight line would equal the gain realized under units of production. D. W&T would realize a gain and the gain realized would be $5,000 higher under units of production as compared to straight line. E. None of the answers are correct.
Q#14: Keep each W&T depreciation scenario separate and do not combine facts, carefully read each problem, as facts can change. On May 1, 20X2, Whiskers & Tails, Inc. buys an airconditioned RV (i.e., a recreational vehicle AKA motor home) to use as an add on service option for clients. The motor home cost W&T $75,000 to purchase. There is high demand for the posh motor home and the company bills out the RV to clients at $125 per hour. In 20X2, at the time of purchase, the company estimated they will use the RV for 8 years and assigned it a 20% residual value. W&T initially expected to use the camper 3,000 hours in total over the eight-year estimated life but then ended up selling the RV on October 1, 20X6 before the 8 years was over. The below table summarizes the company's actual use of the RV (at customer events): 20X2 20X3 20X4 20X5 20X6 Total Actual Hours of Use Per Year 250 310 440 380 320 1,700 Cumulative 250 560 1,000 1,380 1,700 Assume W&T sells the RV on October 1, 20X6 for a selling price of $42,000. Please consider the gain or loss realized under both the straight-line and the units-of-production depreciation methods and select the true answer choice below. Do not round intermediate calculations but do round your final answer to the nearest $1. A. W&T would realize a gain and the gain realized would be $875 higher under units of production as compared to straight line. B. W&T would realize a gain and the gain realized would be $1,625 higher under straight line as compared to units of production. C. Because the depreciable base of the asset is the same, the gain realized under straight line would equal the gain realized under units of production. D. W&T would realize a gain and the gain realized would be $5,000 higher under units of production as compared to straight line. E. None of the answers are correct.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Q#14: Keep each W&T depreciation scenario separate and do not combine facts, carefully read each problem, as facts can change.
On May 1, 20X2, Whiskers & Tails, Inc. buys an airconditioned RV (i.e., a recreational vehicle AKA motor home) to use as an add
on service option for clients. The motor home cost W&T $75,000 to purchase. There is high demand for the posh motor home and the
company bills out the RV to clients at $125 per hour. In 20X2, at the time of purchase, the company estimated they will use the RV
for 8 years and assigned it a 20% residual value. W&T initially expected to use the camper 3,000 hours in total over the eight-year
estimated life but then ended up selling the RV on October 1, 20X6 before the 8 years was over. The below table summarizes the
company's actual use of the RV (at customer events):
20X2
20X3
20X4
20X5
20X6
Total
Actual Hours of Use
Per Year
250
310
440
380
320
1,700
Cumulative
250
560
1,000
1,380
1,700
Assume W&T sells the RV on October 1, 20X6 for a selling price of $42,000. Please consider the gain or loss realized under both the
straight-line and the units-of-production depreciation methods and select the true answer choice below. Do not round intermediate
calculations but do round your final answer to the nearest $1.
A. W&T would realize a gain and the gain realized would be $875 higher under units of production as compared to straight line.
B. W&T would realize a gain and the gain realized would be $1,625 higher under straight line as compared to units of
production.
C. Because the depreciable base of the asset i the same, the gain realized under straight line would equal the gain realized under
units of production.
D. W&T would realize a gain and the gain realized would be $5,000 higher under units of production as compared to straight
line.
E. None of the answers are correct.
Expert Solution
Step 1 Introduction
Depreciation is the expense representing a decrease or reduction in the assets value over a period of time. Therefore, depreciation is one of the approaches to the allocation of the cost of the asset over its useful life. Such an approach is followed with various methods i.e, Straight line method, written down method, etc
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