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Natalie is the CEO of Sugden Company. She is thinking of buying a van that will be used only for business. She estimates that she
Natalie is the CEO of Sugden Company. She is thinking of buying a van that will be used only for business. She estimates that she can buy the van for the price shown below. Natalie would spend an additional amount (shown below) to have the van painted. As well, she wants the back seat of the van removed so that she will have lots of room to transport her juicer inventory and smoothies and supplies. The cost of taking out the back seat and installing shelving units is estimated at the price shown below. She expects the van to last about five years and to be driven for 200,000 km. The annual cost of vehicle insurance is also included below. Natalie estimates that, at the end of the five-year useful life, the van will sell for $5,000. Assume that she will buy the van on March 2, 2022. Natalie is concerned about the impact of the vans cost and related depreciation on Sugdens income statement and balance sheet. All transactions will be completed in cash. | ||||||||
It is estimated that the van will be driven as follows: 10,000 km in 2022, 37,500 km in 2023, 40,000 km in 2024, 47,500 km in 2025, 35,000 km in 2026, and 30,000 km in 2027. | ||||||||
Sugden Company has a May 31 year end. |
Purchase price of the van | $28,400 | |
Painting the van | $3,000 | |
Shelving unit | $1,600 | |
Vehicle insurance | $1,440 | |
Residual value | $5,000 | |
Useful life of the van | 5 | years |
Total mileage over the life of the van | 200,000 | km |
Date of purchase | March 2, 2022 | |
Company's fiscal year-end | May 31, 2022 | |
Useage of van: | ||
2022 | 10,000 | km |
2023 | 37,500 | km |
2024 | 40,000 | km |
2025 | 47,500 | km |
2026 | 35,000 | km |
2027 | 30,000 | km |
Total | 200,000 | |
Part (h) selling price of van | $7,500 | |
Part (j) revised residual value | $4,000 | |
Part (j) revised total useful life | 7 | years |
questions:
a) Determine the cost of the van. |
b) Record the purchase of the van and any other related transactions outlined in the instructions. |
c) Prepare depreciation schedules for the life of the van under the following depreciation methods: 1. straight-line. 2. diminishing-balance at double the straight-line rate. 3. units-of-production. |
j) Independent of part (i) above, assume that on June 1, 2025, Natalie revised the total estimated useful life to seven years, with a revised residual value of $4,000 instead of $5,000. Prepare the depreciation schedule for the life of the van under the straight-line depreciation method. |
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