Situation 2: Malcolm Limited acquired a truck to deliver and install its specialized products at the customer's site. The vehicle's list price was $135,000, but customization added another $30,000 in costs. Malcolm took delivery of the truck on September 30, 2020, with a down payment of $15,000, signing a four-year, 8.0% note for the remainder, payable in equal payments of $43,488 beginning September 30, 2021. Malcolm expected the truck to be usable for 500 deliveries and installations. After that, the product's technology would have changed and made the vehicle obsolete. In late July 2023, the truck was destroyed when a concrete garage collapsed. Malcolm used the truck for 45 deliveries in 2020, 125 in 2021, 134 in 2022, and 79 in 2023. The company received a cheque for $12,000 from the insurance company and paid what remained on the note. Required #2: Prepare all entries that are needed to record the events and activities related to the truck, the note, and its interest, including the depreciation expense on the truck each year. Assume that Malcolm uses an activity approach to depreciate the truck, and bases
Situation 2: Malcolm Limited acquired a truck to deliver and install its specialized products at the customer's site. The vehicle's list price was $135,000, but customization added another $30,000 in costs. Malcolm took delivery of the truck on September 30, 2020, with a down payment of $15,000, signing a four-year, 8.0% note for the remainder, payable in equal payments of $43,488 beginning September 30, 2021. Malcolm expected the truck to be usable for 500 deliveries and installations. After that, the product's technology would have changed and made the vehicle obsolete. In late July 2023, the truck was destroyed when a concrete garage collapsed. Malcolm used the truck for 45 deliveries in 2020, 125 in 2021, 134 in 2022, and 79 in 2023. The company received a cheque for $12,000 from the insurance company and paid what remained on the note. Required #2: Prepare all entries that are needed to record the events and activities related to the truck, the note, and its interest, including the depreciation expense on the truck each year. Assume that Malcolm uses an activity approach to depreciate the truck, and bases
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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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