Question
Jazz Corporation is owned by three shareholders, Ms. Socks, Mr. Gizmo & Mr. Fore. The company has just completed it's first year of operations on
Jazz Corporation is owned by three shareholders, Ms. Socks, Mr. Gizmo & Mr. Fore. The company
has just completed it's first year of operations on May 31, 2021 and the partners are trying to decide
how to calculate depreciation on the the delivery vehicle they purchased during the year.
On December 1, 2020 Jazz Corporation purchased a delivery truck for $36,000. The shareholders'
estimate the useful life of the vehicle is 5 years or 125,000 km & that they will be able to sell
it for $6,000 at the end of it's useful life.
The shareholder's can't agree on which method of depreciation to use - Socks wants to use
straight line, Gizmo wants to use double-declining balance & Fore wants to use units-of-
production. They have come to you for some assistance
The vehicle was driven 12,000 km in the first year of operations.
Required:
1. Applying the half-year rule calculate depreciation for the year ended May 31, 2021 using
a- the straight line method
b - the double-declining balance method
c - the units of production method
2. Prepare the journal entry to record the depreciation assuming they use the straight line method
3. Which method will result in Jazz Corporation having the highest net income for the year ending
May 31, 2021
4. Assume that Jazz Corporation uses the straight line method for depreciation & sells the vehicle
on June 1 , 2023 for $20,000. Prepare the journal entry to record the sale of the vehicle.
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