Question

Steve's Outdoor Company purchased a new delivery van on January 1 for $45,000 plus $3,800 in sales tax. The company paid $12,800 cash on the van (including the sales tax), with the $36,000 balance on credit at 8 percent interest due in nine months (on September 30). On January 2, the company paid cash of $700 to have the company name and logo painted on the van. On September 30, the company paid the balance due on the van plus the interest. On December 31 (the end of the accounting period), Steve's Outdoor recorded depreciation on the van using the straight-line method with an estimated useful life of 5 years and an estimated residual value of $4,500.
Required:
a. Compute the acquisition cost of the van.
b. Compute the depreciation expense to be reported for Year 1.

Answer 1

Answer:

a. Compute the acquisition cost of the van.

van's basis = $45,000 (the van) + $3,800 (sales tax) + $700 (logo) = $49,500

When you purchase an asset, its basis must include the cost of the asset, any freight costs, taxes associated with the sale, any applicable insurance expense, installation costs and or any modifications necessary.

b. Compute the depreciation expense to be reported for Year 1.

depreciable value = $49,500 - $4,500 = $45,000

depreciation expense per year = $45,000 / 5 = $9,000

December 31, 202x, depreciation expense

Dr Deprecation expense 9,000

    Cr Accumulated depreciation: van 9,000