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On January 3, 2012, Trusty Delivery Service bought a truck at a cost of $90,000. Before placing the truck in service, Trusty spent $3,000 painting it, $1,500 replacing tires, and $4,500 overhauling the engine. The truck must remain in service for 5-years and have a residual value of $9,000. The truck's annual mileage is expected to be 22,500 miles in each of the first four years and 10,000 miles in the fifth year-100,000 miles in total. In deciding which depreciation technique to use, Mikail Johnson, the general manager, requests a depreciation schedule for each of the depreciation techniques (straight-line, units-of-production and double-declining-balance). 

Requirements:

1) Make a depreciation schedule for each and every depreciation method, showing asset cost, depreciation expense, accumulated depreciation and asset book value.

2) Trusty 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 the income taxes in the early years. Consider the first year which Trusty uses 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 methods.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M919127

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