Cookie Creations 10 a-b,c,e (Part Level Submission)
Natalie is thinking of buying a van that will be used only for business. The cost of the van is
... [Show More] 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.
(a) Determine the cost of the van.
Cost of the van $
Solution
Cookie Creations 10 a-b,c,e (Part Level Submission)
Purchase price $36,500
Painting 2,500
Shelving 1,500
Cost of van $40,500
(b) 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
Year Depreciable Costs Depreciation Expense Accumulated Depreciation Net Book Value
40500
2020 33000 2200 2200 38300
2021 33000 6600 8800 31700
2022 33000 6600 15400 25100
Double-declining-balance depreciation
Year NBV (Beg. of Year) Depreciation Expense Accumulated Depreciation Net Book Value
40500
2020 40500 5400 5400 35100
2021 35100 14040 19440 21060
2022 21060 8424 27864 12636
Units-of activity depreciation
Year Units of Activity Depreciation Expense Accumulated Depreciation Net Book Value
40500
2020 15000 2475 2475 38025
2021 45000 7425 9900 30600
2022 50000 8250 18150 22350
Cookie Creations 10 a-b,c,e (Part Level Submission)
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 yearend. (Round depreciation cost/unit to 3 decimal places, e.g. 0.225.) [Show Less]