CHAPTER 10

Cookie Creations

(Note:This is a continuation of the Cookie Creations from Chapters 1 through 9.)

CC10 Natalie is also 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, 2020, and it will be ready for use on September 1, 2020.

Natalie is concerned about the impact of the vans cost on her income statement and

balance sheet. She has come to you for advice on calculating the vans depreciation.

Instructions

(a) Determine the cost of the van.

(b) Prepare three depreciation tables for 2020, 2021 and 2022: one for straight-line

depreciation (similar to the one in Illustration 10-10), one for double-declining

balance depreciation (Illustration 10-14), and one for units-of-activity depreciation

(Illustration 10-12). For units-of-activity, Natalie estimates she will drive the van as

follows: 15,000 miles in 2020; 45,000 miles in 2021; 50,000 miles in 2022. Recall

that Cookie Creations has a December 31 year-end.

(c) What impact will the three methods of depreciation have on Natalies balance sheet

at December 31, 2020? What impact will the three methods have on Natalies

income statement in 2020?

(d) What impact will the three methods of depreciation have on Natalies income

statement over the vans total 5-year useful life?

(e) What method of depreciation would you recommend Natalie use?