Question 4 (1.5 points)

Coca-Cola Spain acquired recently a delivery truck in order to reinforce its distribution network in the South of the country. The acquisition value of the truck was $61,000, it has an expected useful life of 4 years, and a $5,000 expected residual (=salvage) value.

Required: (Solve this exercise on the ANSWER SHEET)

a. Prepare a tabular comparison of the annual depreciation and book value for each year under straight-line and Double Declining Balance depreciation (0.5 points)

b. Assume straight-line depreciation is used. 2 years after the purchase, and after using the equipment less than expected, Coca-Cola Spain decided to change the useful life from 4 years to 6 years. Calculate depreciation expense for year 4. (0.5 points)

c. Assume Coca-Cola Spain chooses the straight-line method with a useful life of 4 years and a residual value of 5,000. What would be the journal entry if Coca-Cola Spain sells the equipment for 30,000 (cash) after 2 years? (0.5 points)

Note: Points b. and c. are independent questions. You can ignore b. for solving c. and you can ignore c. for solving b.