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Polaris Transportation wants to replace its old fleet of vehicles and purchase 8 new vehicles. Information about these vehicles is listed below: Purchase price: $29,780

Polaris Transportation wants to replace its old fleet of vehicles and purchase 8 new vehicles. Information about these vehicles is listed below:

  • Purchase price: $29,780 per vehicle
  • PST: $2,382 per vehicle
  • GST: $1,489 per vehicle
  • New tires and brakes for all six vehicles: $3,500 total.
  • Estimated annual costs for oil changes and regular maintenance: $235 per vehicle

Before investing in new vehicles, Polaris must dispose of their current fleet of 7 vehicles that were purchased on June 1, 2016 at a total cost of $285,600. When purchased, the old vehicles were expected to have a life of 6 years with a residual value of $5,000 per vehicle. Disposal of the old vehicles will occur on October 1, 2020, to coincide with the arrival of the new vehicles. Polaris has a December 31st year end and records depreciation expense annually.

Required:

Part A

Treat the following situations independently and round all your numbers to the 2nd decimal place. Prepare the journal entries to dispose of the 7 old vehicles, assuming:

a. The vehicles were sold for $6,500 each and the company uses straight line depreciation. (5 marks)

b. The vehicles were sold for $6,200 each and the company uses Double Declining Balance depreciation. (5 marks)

Part B

If Polaris purchased the four new vehicles, what would be the capitalized cost for the four new vehicles? (2 marks)

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