+ CC9 CONTINUING CASE: COOKIE CREATIONS Natalie is thinking of buying a van that will be used only for business. The cost of the van is estimated at $36,500. Natalie would spend an additional $2,500 to have the van painted. In addition, she wants the back seat of the van removed so that she will have lots of room to transport her mixer inventory as well as her baking supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,500. She expects the van to last about 5 years, and she expects to drive it for 200,000 miles. The annual cost of vehicle insurance will be $2,400. Natalie estimates that at the end of the 5-year useful life the van will sell for $7,500. Assume that she will buy the van on August 15, 2023, and it will be ready for use on September 1, 2023. Natalie is concerned about the impact of the van's cost on her income statement and balance sheet. She has come to you for advice on calculating the van's depreciation. Instructions (a) Determine the cost of the van. (b) Prepare three depreciation tables for 2023, 2024, and 2025: one for straight-line depreciation (similar to the one in Illustration 9.10), one for double-declining balance depreciation (Illustration 9.14), and one for units-of-activity depreciation (Illustration 9.12). For units-of- activity, Natalie estimates she will drive the van as follows: 15,000 miles in 2023; 50,000 miles in 2024; 50,000 miles in 2025; 45,000 miles in 2026; 40,000 miles in 2024. Recall that Cookie Creations has a December 31 year-end. (c) What impact will the three methods of depreciation have on Natalie's balance sheet at December 31, 2023? What impact will the three methods have on Natalie's income statement in 2023? (d) What impact will the three methods of depreciation have on Natalie's income statement over the van's total 5-year useful life? (e) What method of depreciation would you recommend Natalie use? (a) 1 2 3 Total Cost of van Estimated cost $36,500 Add: Painting Cost $2,500 Add: Other Cost $1,500 Total Cost of VAN $40,500 Straight-line depreciation Depreciable Depreciation Cost Rate 4 5 (b) Depreciation Expense Accumulated Depreciation Year 2023 2024 2025 40500 40500 40500 20% 20% 20% 2,200 6,600 6,600 2,200 8,800 15,400 Double-declining balance depreciation NBV (Beg.) Depreciation of Year) Rate Depreciation Expense Accumulated Depreciation Year 6 Net Book 7 Value 8 9 38,30010 31,700 11 25,100 12 13 14 15 Net Book 16 Value 17 18 35,100 19 21,060 20 12,63621 22 23 Net Book 24 Value 25 26 38,02527 30,600||28 22,350||29 2023 2024 40500 40500 40500 40% 40% 5,400 14,040 8,424 5,400 9,440 27,864 2025 40% Units-of-activity depreciation Units-of- Deprec. Activity X Cost/Unit Depreciation Expense Accumulated Depreciation Year 2023 2024 2025 40,500 40,500 40,500 0.165 0.165 0.165 2475 7425 8250 2475) 9900 18,150 In c) Impact on Cookie Creations balance sheet and income statement in 2023 Straight- Line Double- Declining Balance Units-of- Activity 1 2 2 13 2400 2200 2400 5400 24004 24755 3 Indirect Expenses 4 Insurance of Car 5 Depreciation expense 6 7 3 9 0 6 7 8 9 10 1 2 3 4 5 11 12 13 14 15 (d) 6 7 9 20 16 17 18 19 20 21 22 23 24 25 (e) She should use the double declining method. 21 -2 23 -4 51 26 27 81 26 27 28 29 30 10 11 21 13 14 31 32 33 34 25