Question
Meteor Delivery Services operates a delivery and messenger service in the metropolitan area and surrounding state of a major city located in the southern US.
Meteor Delivery Services operates a delivery and messenger service in the metropolitan area and
surrounding state of a major city located in the southern US. Meteor delivers a large variety of
things, from materials, products, medical supplies, printed material, auto parts, office supplies,
computer parts, home health products, audio/video equipment, gifts, lab results, and legal,
accounting and architectural documents. Meteor's services include warehousing & distribution.
Meteor's delivery fleet includes cars, pickups, vans and trucks. In addition, the company uses
professionally trained bicyclists and walkers to handle many of its downtown
deliveries. Meteor's accounting policies for its delivery fleet are:
It states property and equipment on the basis of cost.
For financial reporting purposes, it records depreciation of property and equipment on a
straight-line basis over the asset's service life or related lease term. For income tax
purposes, it computes depreciation using accelerated methods.
It capitalizes expenditures for major additions, improvements, modifications and
overhaul costs when it determines such costs extend the useful life of the asset. It
charges to expense as incurred maintenance and repair expenditures.
It reviews the carrying value of long-lived assets for potential impairment on a periodic
basis and whenever events or changes in circumstances indicate the carrying value of an
asset may not be recoverable. Impairment is determined by comparing projected
undiscounted cash flows to be generated by the asset to its carrying value. If an
impairment is identified, a loss is recorded equal to the excess of the asset's net book
value over its fair value, and the cost basis is adjusted.
The company's delivery fleet includes approximately 50 Ford Econoline Cargo vans (E-150 3
door with 4.6L 8 cylinder engines), which it depreciates using a five-year useful life. Current
balance sheet information on its Ford vans is as follows (dollars in thousands):
Cost $1,127
Accumulated depreciation 521
Net book value $606
REQUIRED
1. Assume that Meteor purchases a new Ford Econoline Cargo van, paying $23,940. The
company estimates that the salvage value of this van after five years of delivery use will be
$5,100. Create an Excel line graph that displays the expected annual depreciation expense
and the net book value associated with the new Ford Econoline van over its 5-year life
assuming each of the following depreciation methods:
a. Straight-line;
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