Question

Question 17 /1 View Policies Current Attempt in Progress Natalie is thinking of buying a van that will be used only for business. The cost of the van is estimated at $36,500. Natalie would spend an additional $2,500 to have the van painted. In addition, she wants the back seat of the van removed so that she will have lots of room to transport her mixer inventory as well as her baking supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,500. She expects the van to last about 5 years, and she expects to drive it for 200,000 miles. The annual cost of vehicle insurance will be $2,400. Natalie estimates that at the end of the 5-year useful life the van will sell for $7,500. Assume that she will buy the van on August 15, 2020, and it will be ready for use on September 1, 2020. Natalie is concerned about the impact of the van's cost on her income statement and balance sheet. She has come to you for advice on calculating the van's depreciation. Determine the cost of the van $ Cost of the van 40500 eTextbook and Media Prepare three depreciation tables for 2020, 2021 and 2022: one for straight-line depreciation (similar to the one in Illustration 10-9), one for double-declining balance depreciation (Illustration 10-10), and one for units-of-activity depreciation (Illustration 10-11). For units-of-activity, Natalie estimates she will drive the van as follows: 15,000 miles in 2020; 45,000 miles in 2021; 50,000 miles in 2022; 50,000 miles in 2023; and 40,000 miles in 2024. Recall that Cookie Creations has a December 31 year-end. (Round depreciation cost/unit to 3 decimal places, e.g. 0.225.) Straight-line depreciation Accumulated Depreciation Year Depreciation Expense Depreciable Costs Net Book Value $ 2020 $ 2021 2022

Answer 1

1. Determining Cost of Van

Particulars	Amount (in $)
Cost of Van	36500
Painting Cost	2500
Cost of Installing Shelve	1500
Total Cost of Van	40500

2. Straight Line of Depreciation

Year	Depreciable Cost	Depreciation Expense	Accumulated Depreciation	Net Book Value
				40500
2020	40500	2200	2200	38300
2021	38300	6600	8800	31700
2022	31700	6600	15400	25100

3.Double Declining Method of Depreciation

Year	NBV (Beginning)	Depreciation Expense	Accumulated Depreciation	Net Book Value
				40500
2020	40500	5400	5400	35100
2021	35100	14040	19440	21060
2022	21060	8424	27864	12636

4, Units of Activity of Depreciation

Year	Units of Activity	Depreciation Expense	Accumulated Depreciation	Net Book Value
				33000
2020	15000 Miles	2475	2475	30525
2021	45000 Miles	7425	9900	23100
2022	50000 Miles	8250	18150	14850

5. Impact of Natalie Balance Sheet Year Ended 2020

Particulars	Straight Line	Double Declining	Units Of Activity
Cost	40500	40500	40500
Accumulated Depreciation	2200	5400	2475
Net Book Value	38300	35100	38025
Depreciation Expense	2200	5400	2475

6.Natalie Should use Units of Activity method of depreciation as it fits to its nature of asset.

Note: For any more detailed calculation or explanation on any point, please comment your query.