Zoom Car Corporation (ZCC) plans to purchase approximately 100 vehicles on Decem

Question

Zoom Car Corporation (ZCC) plans to purchase approximately 100 vehicles on December 31, 2015, for $2.9 million, plus 8 percent total sales tax. ZCC expects to use the vehicles for 5 years and then sell them for approximately $522,000. ZCC anticipates the following average vehicle use over each year ended December 2016 15,000 2017 20,000 2018 23.500 2019 23,500 2020 5,000 Miles ear To finance the purchase, ZCC signed a 5-year promissory note on December 31, 2015, for S2.61 million with interest paid annually at the market interest rate of 6 percent. The note caries loan covenants that require ZCC to maintain a minimum times interest earned ratio of 3.0 and a minimum fixed asset turnover ratio of 1.0. ZCC forecasts that the company will generate the following sales and preliminary eamings (prior to recording depreciation on the vehicles and interest on the note). (For purposes of this question, ignore income tax) Sales Revenue Income before S 2,900 S 3,400 3,700 $ 3,800 $ 3,900 1.450 60 850 1,950 2,050 Depreciation and Interest Expense Required: 1. Calculate the amount of interest expense that would be recorded each year Answer is complete and correct. 156,600per ear 2. Calculate the depreciation expense that would be recorded each year, using the following depreciation methods (a) Straight-line Answer is complete and correct. 522,000Per (b) Double-declining-balance (Do not round intermediate calculations.) Answer is complete and correct. preciation 2016 $ 1,252,800 2017 2018 2019 S 154,512 2020 751 ,680 51,008 Answer is complete and correct. 2016 2017 2018 2019 |$ 705,000 2020 450,000 600,000 705,000 150,000

Explanation / Answer

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.

2016 2017 2018 2019 2020 Turnover 2900000 3400000 3700000 3800000 3900000 Book Value of Fixed Asset 3132000 3132000 1879200 1127520 676432 521920 Depreciation (Given) 0 -1252800 -751680 -451088 -154512 0 Book Value 3132000 1879200 1127520 676432 521920 521920 Average Book Value 2505600 1503360 901976 599176 521920 Fixed Asset Ratio=Turnover/Average Fixed Asset 1.16 2.26 4.10 6.34 7.47

Related Questions

Navigate

• Browse (All)
• Browse Z
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.