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On January 2, 2006, Speedway Delivery Service bought a truck at a cost of $63,000. Before placing the truck in service, Speedway spent $2,200 painting it, $800 replacing tyres, and $4,000 overhauling the engine. The truck must remain in service for 6-years and contain a residual value of $14,200. The truck's annual mileage is predicted to be 18,000 miles in each of the first four years and 14,000 miles in each of the next two years-100,000 miles in total. In deciding which depreciation process to use, Jerry Speers, the general manager, requests a depreciation agenda for each of the depreciation methods (straight-line, units-of-production, and double-declining-balance).

Requirements:

1. Develop a depreciation schedule for each depreciation method, showing the asset cost, depreciation expenditure, accumulated depreciation and asset book value. 

2) Speedway makes financial statements by using the depreciation method which reports the maximum net income in the early years of asset use. For income-tax purposes, the company employs the depreciation method which minimizes income taxes in the early years. Consider the first year which Speedway employs the truck. Recognize the depreciation methods which meet up the general manager's objectives, supposing the income tax authorities permit the use of any of the techniques.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M919198

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