CCC9 Natalie is also thinking of buying a van that will be used only for busines

Question

CCC9 Natalie is also thinking of buying a van that will be used only for business. The cost of the van is estimated at $38,500. 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 her about 5 years, and she expects to drive it for 100,000 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 $6,500. Assume that she will buy the van on August 15, 2015, and it will be ready for use on September 1, 2015. 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. Instructions (a) Determine the cost of the van. (b) Prepare a depreciation table for straight-line depreciation (similar to the one in Illustration 9-9). Recall that Cookie Creations has a December 31 fiscal year-end.

**I am not sure what to put for depreciation rate** and is this correct so far?

STRAIGHT - LINE DEPRECIATION Computation End of Year Annual Depreciable Depreciation Depreciation Accumulated Book Years Cost Rate Expense Depreciation Value 2015 36,000 2,400 2,400 40,100 2016 36,000 7,200 9,600 32,900 2017 36,000 7,200 16,800 25,700 2018 36,000 7,200 24,000 18,500 2019 36,000 7,200 31,200 11,300 2020 36,000 4,800 36,000 6,500 Total Exp. 36,000

Explanation / Answer

Cost of the van Purchase Cost 38500 Cost of Van Painted 2500 Installing Shelving Units & Cost of removing the seats 1500 total Cost of van 42500 Depreciable Cost = $42500 - $6500 = $36000 Dep. Per annum as per Straight Line Method = $36000/5 Years = $7200 Year Depreciable Cost Annual depreciation expenses Accumulated Dep. Book Value                        42,500 2015                 36,000                      2,400                    2,400                        40,100 2016                 36,000                      7,200                    9,600                        32,900 2017                 36,000                      7,200                  16,800                        25,700 2018                 36,000                      7,200                  24,000                        18,500 2019                 36,000                      7,200                  31,200                        11,300 2020                 36,000                      4,800                  36,000                          6,500

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