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Exercise 4 (30 points) Beer Delivery purchased a delivery truck for a price of $5,000 on January 1, 2020. Related expenditures consist of sales taxes
Exercise 4 (30 points) Beer Delivery purchased a delivery truck for a price of $5,000 on January 1, 2020. Related expenditures consist of sales taxes equal to $1,000, painting and lettering for $500, motor vehicle license of $800, and a three-year accident insurance policy for $1,200. The truck has an expected residual value of $600 and is expected to be driven 200,000 miles over its estimated useful life of 7 years. Actual miles driven were 35,000 in 2020 and 20,000 in 2021. Instructions a. Compute the book value of the truck on January 1, 2020. b. Compute depreciation expense for 2020 and 2021 using (1) the straight-line method, (2) the units-of-activity method, and (3) the double declining-balance method. c. Assume that BeerDelivery uses the straight-line method. 1. Prepare the journal entry to record 2020 depreciation 2. Show how the truck would be reported in the December 31, 2020, statement of financial position d. Which of the three depreciation methods would maximize the operating cash flow reported in the Statement of Cash Flows? Briefly explain
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