McNabb Corporation purchased a delivery van for \($25,500\) in 2007. The firm’s financial condition immediately prior to the purchase is shown in the following horizontal statements model:

The van was expected to have a useful life of 150,000 miles and a salvage value of \($3,000\). Actual mileage was as follows:

Required:

a. Compute the depreciation for each of the three years, assuming the use of units-of-production depreciation.

b. Assume that McNabb earns \($21,000\) of cash revenue during 2007. Record the purchase of the van and the recognition of the revenue and the depreciation expense for the first year in a financial statements model like the preceding one.

c. Assume that McNabb sold the van at the end of the third year for \($4,000\) . Show the sale of the van in a statements model like the preceding one.

Transcribed Image Text:

Assets Cash + Van Acc. Dep. 50,000 + NA NA = Equity Rev. - Exp. = Net Inc. Cash Flow Com. Stk. + Ret. Earn. 50,000 + NA NA == NA = NA NA