Computing and recording units-of-production depredation
McNabb Corporation purchased a delivery van for $25,500 in 2011. The firm's financial condition immediately prior to the purchase is shown in the following horizontal statements model:
Assets = |
| Equity |
| Rv. | - | Exp. = | Net Inc. | Cash Flow | |
Cash | + Book Value of Van = | Com. Stk. | + | Ret. Earn. |
| ||||
50,000 | + NA | 50,000 | + | NA | NA | - | NA | NA | NA |
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:
2011 | 50,000 |
2012 | 70,000 |
2013 | 58,000 |
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 2011. 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 one shown above.
c. Assume that McNabb sold the van at the end of the third year for $4,000. Record the general journal entry for the sale.
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