West Side Pizza bought a used Toyota delivery van on January 2, 2016, for $21,80

Question

West Side Pizza bought a used Toyota delivery van on January 2, 2016, for $21,800 The van was expected to remain in service for four years (48,750 miles).At the end of its useful life, West Side officials estimated that the van's residual value would be $2,300. The van traveled 15,000 miles the first year. 17,000 miles the second year, 12,500 miles the third year and 4,250 miles in the fourth year Requirements 1 Prepare a schedule of depreciation expense per year for the van under the three depreciation methods 2Which method best tracks the wear and tear on the van? Which method would West Side prefer to use for income tax purposes? Explain in detail why West Side would prefer this method Requirement 1 Prepare a schedule of depreciation expense per year for the van under the three depreciation methods For units-of-production and double-declining-balance methods, round to the nearest two decimal places after each step of the calculation For years with S0 depreciation, make sure to enter "0 in the appropriate column Units-ofDouble-Declining- Production Year 2016 2017 2018 2019 Total Straight-Line Balance Requirement 2. Which method best tracks the wear and tear on the van? The (1) method tracks the wear and tear on the van most closely Requirement 3. Which method would West Side prefer to use for income tax purposes? Explain in detail why West Side would prefer this method. For income tax purposes, West Side's would prefer the (2) (3)depreciation, and thus, the (4) (1)O double-declining-balance (2) double-declining-balance method because it provides the tax deductions in the early life of the asset. (3)least most (4)largest O straight-line O smallest O straight-line O units-of-production units-of-production

Explanation / Answer

Requirement:1 Straight-line method Annual depn. Depreciable base Jan 2,2016 19500 2016 4875 2017 4875 2018 4875 2019 4875 DDB method at 2 times the annual straight line rate ie. 2*(4875/19500)=2*25%=50% on DDB Annual depn. Depreciable base Jan 2,2016 21800 2016 10900 10900 2017 5450 5450 2018 2725 2725 2019 1363 1363 Units of production method Depn.per mile=(21800-2300)/48750= 0.4 per mile Annual mileage Annual depn. Amt.at 0.4 /mile Jan 2,2016 2016 15000 6000 2017 17000 6800 2018 12500 5000 2019 4250 1700 Annual depn. Under the 3 methods St.line Units of Prodn. DDB 2016 4875 6000 10900 2017 4875 6800 5450 2018 4875 5000 2725 2019 4875 1700 1363 Total 19500 19500 20438 ANWERS: Req.: 2 1. DDB Req. 3 West Side would prefer DDB because it deducts more depreciation in the initial years themselves and recovers the cost spent more quickly , for fast-depreciating assets like vans and also gets   the maximum larger tax benefits,compared to other forms of depreciation 2. DDB 3. Most 4.largest

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