Accounts cost asset and depreciation IXLS

P10-31A

P10-31A Determining asset cost, preparing depreciation schedules (3 methods), and
		identifying depreciation results that meet management objectives.

		On January 3, 2018, Rapid Delivery Service purchased a truck at a cost of $100,000.
		Before placing the truck in service, Rapid spent $3,000 painting it, $600 replacing tires,
		and $10,400 overhauling the engine. The truck should remain in service for five years
		and have a residual value of $12,000. The truck’s annual mileage is expected to be
		32,000 miles in each of the first four years and 8,000 miles in the fifth year – 136,000
		miles in total. In deciding which depreciation method to use, Andy Sargeant, 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.	Rapid 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 Rapid uses the truck. Identify the depreciation method that meets the general manager’s objectives.
Solution:
	Requirement 1
	Purchase price of truck									$ – 0
	Add related costs:
		Painting							– 0
		Tires							– 0
		Engine overhaul							– 0	– 0
	Total cost of truck									$ – 0
	hint: Depreciable cost = Cost – Residual value
	Straight-Line Depreciation Schedule
				Depreciation for the Year
			Asset	Depreciable	Depreciation	Depreciation		Accumulated		Book
		Date	Cost	Cost	Rate	Expense		Depreciation		Value
		1/3/18	$ 114,000							$ 114,000
				$ – 0	1/5	$ – 0		$ – 0		$ – 0
				$ – 0	1/5	$ – 0		$ – 0		$ – 0
				$ – 0	1/5	$ – 0		$ – 0		$ – 0
				$ – 0	1/5	$ – 0		$ – 0		$ – 0
				$ – 0	1/5	$ – 0		$ – 0		$ – 0
	Depreciation per unit			= (Cost – Residual value) / Useful life in units


	Units-of-Production Depreciation Schedule
				Depreciation for the Year
			Asset	Depreciation	Number	Depreciation		Accumulated		Book
		Date	Cost	per Unit	of Units	Expense		Depreciation		Value
	1/3/18		$ 114,000							$ 114,000
				$ – 0	– 0	$ – 0		$ – 0		$ – 0
				$ – 0	– 0	$ – 0		$ – 0		$ – 0
				$ – 0	– 0	$ – 0		$ – 0		$ – 0
				$ – 0	– 0	$ – 0		$ – 0		$ – 0
				$ – 0	– 0	$ – 0		$ – 0		$ – 0
			*Note – 12/31/18 Depreciation Expense is $24,000
	Double-Declining-Balance Depreciation Schedule
				Depreciation for the Year
			Asset	Book Value	DDB	Depreciation		Accumulated		Book
	Date		Cost		Rate	Expense		Depreciation		Value
	1/3/18		$ 114,000							$ 114,000
				$ – 0	2 x (1/5)		$ – 0	$ – 0		$ – 0
				$ – 0	2 x (1/5)		$ – 0	$ – 0		$ – 0
				$ – 0	2 x (1/5)		$ – 0	$ – 0		$ – 0
				$ – 0	2 x (1/5)		$ – 0	$ – 0		$ – 0
				$ – 0	2 x (1/5)		$ – 0	$ – 0		$ – 0
	*HINT- 5th year depreciation is the “plug figure” needed to reduce book value to
	residual value
	Requirement 2

&”Arial,Bold”&12HORNGREN’S ACCOUNTING – 12th Edition

&”Arial,Bold”&10Chapter 10: Plant Assets, Natural Resources, and Intangibles &”Arial,Bold”&10Page &P of &N

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