Cost of Assets, Subsequent Book Values, and Balance Sheet Presentation The following events took place at Pete’s Painting Company during 2008:

a. On January 1, Pete bought a used truck for $14,000. He added a tool chest and side racks for ladders for $4,800. The truck is expected to last four years and then be sold for $800. Pete uses straight-line depreciation.

b. On January 1, he purchased several items at an auction for $2,400. These items had fair market values as follows:

Pete will use all of the paint trays and roller covers this year. The storage cabinets are expected to last nine years; the ladders and scaffolding, four years.

c. On February 1, Pete paid the city $1,500 for a three-year license to operate the business.

d. On September 1, Pete sold an old truck for $4,800. The truck had cost $12,000 when it was purchased on September 1, 2003. It had been expected to last eight years and have a salvage value of $800.
Required 1. For each situation, explain the value assigned to the asset when it is purchased [or for (d), the book value when sold].
2. Determine the amount of depreciation or other expense to be recorded for each asset for 2008.
3. How would these assets appear on the balance sheet as of December 31, 2008?

Transcribed Image Text:

10 cases of paint trays and roller covers Storage cabinets Ladders and scaffolding $ 200 600 2,400