Laila is thinking of buying a van that will be used only in the business. The cost of the van is estimated at $36,500. Laila 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. Laila 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, 2017, and it will be ready for use on September 1, 2017.

Laila 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 2017, 2018 and 2019: one for straight-line depreciation , one for double-declining balance depreciation , and one for units-of-activity depreciation . For units-of-activity, Laila estimates she will drive the van as follows: 15,000 miles in 2017; 45,000 miles in 2018; 50,000 miles in 2019; 50,000 miles in 2020; and 40,000 miles in 2021. Recall that Cookie Creations has a December 31 year-end.

(c) What impact will the three methods of depreciation have on Lailas balance sheet at December 31, 2017? What impact will the three methods have on Lailas income statement in 2017?

(d) What impact will the three methods of depreciation have on Lailas income statement over the vans total 5-year useful life?

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