Question

UESTION 1 Beach Front Foods Inc. has decided to add a delivery service to its business. At the beginning of 2020 the company purchased a car to use to deliver customer orders. The purchase price of the car included non-refundable taxes. The car was painted with the store logo and they had to purchase the annual license fee. During the year they purchased gas to run the car and paid maintenance costs. 42,000 5,800 Purchase price of car Non-refundable taxes Painting for logo License fee a) Calculate the cost of the asset to Beach Front. Provide brief support for all items included in the cost and the reason any costs are not included. b) Assuming capital cost is $40,000, calculate depreciation using the Straight Line Method for 2020 c) Assuming capital cost is $40,000, calculate depreciation using the Units-of-activity Method for 2020 d) Assuming capital cost is $40,000, calculate depreciation using the Double Declining Balance Method for 2020 Gas 1,000 750 3,000 1,000 200,000 KM 27,500 KM 5,000 8 years Maintenance Expected total mileage Actual mileage (2020) Expected residual value Expected useful life e) Now assume that at the end of Year 2, Beach Front Foods, determines that, as a result of damage to the equipment, the value in use of the asset has decreased to $25,000. Determine the impairment loss and prepare the journal entry for the loss, assuming original capital cost was $40,000 and Straight-Line Depreciation in b) was $4,500. f) Instead of impairment, now assume that at the end of Year 2, Beach Front Foods sells the car for $38,000. Determine the gain or loss and prepare the journal entry for the sale, assuming original capital cost was $40,000 and Straight-Line Depreciation in b) was

Answer 1

PART A

Cost of the car would include purchase price and non refundable taxes only. Thus cost would be 42000+5800 = $ 47,800. It would exclude license fees because it is an annual cost and not comes under definition of capital cost for assets. Painting is also a revenue expense to be incurred every year.

PART B

Depreciation under SLM = cost of the asset - residual value / life of asset = 40000-5000/8 = 35000/8 = $ 4375

PART C

Depreciation under Units of activity = cost of the asset - residual value / total mileage x mileage in 2020 = 40000-5000/200000*27500 = $ 4812.50

PART D

Under double declining depreciation would be $ 10,000

$ 40,000 * 25% = $ 10,000

Dear student, please note that as HOMEWORKLIB's Honor Code an expert is allowed to answer 1 question per post OR 4 sub parts of a single question with various sub parts like this one. Please re-post for the rest. Hope this helps, if not please let know in comments. Please mark the answer as helpful for the efforts put, it will mean alot. Thanks