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Concept explainers
Determining asset cost, recording first-year
On January 3, 2016, Fast Delivery Service purchased a truck at a cost of $62,000. Before placing the truck in service, Fast spent $3,000 painting it, $1,500 replacing tires, and $3,500 overhauling the engine. The truck should remain in service for five years and have a residual value of $5,000. The truck’s annual mileage is expected to be 28,000 miles in each of the first four years and 18, 000 miles in the fifth year–130,000 miles in total. In deciding which depreciation method to use, Steven Kittridge, the general manager, requests a depreciation schedule for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance).
Requirements
- 1. Prepare a depreciation schedule for each depreciation method, showing asset cost, depreciation expense,
accumulated depreciation , and asset book value. - 2. Fast prepares financial statements using the depreciation method that reports the highest net income in the early years of asset use. Consider the first year that Fast uses the truck. Identify the depreciation method that meets the company’s objectives.
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Chapter 9 Solutions
Horngren's Financial & Managerial Accounting (5th Edition)
- Recently, Abercrombie & Fitch has been implementing a turnaround strategy since its sales had been falling for the past few years (11% decrease in 2014, 8% in 2015, and just 3% in 2016.) One part of Abercrombie's new strategy has been to abandon its logo-adorned merchandise, replacing it with a subtler look. Abercrombie wrote down $20.6 million of inventory, including logo-adorned merchandise, during the year ending January 30, 2016. Some of this inventory dated back to late 2013. The write-down was net of the amount it would be able to recover selling the inventory at a discount. The write-down is significant; Abercrombie's reported net income after this write-down was $35.6 million. Interestingly, Abercrombie excluded the inventory write-down from its non-GAAP income measures presented to investors; GAAP earnings were also included in the same report. Question: What journal entry would Abercrombie & Fitch have made to write down its merchandise inventory during the year ended…arrow_forwardHow much did riverton spend to acquire new fixed assets during 2022 ?arrow_forwardHow much income should be recognized by the employee from these transactions?arrow_forward
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