Project Description:

natalie is thinking of buying a van that will be used only for business. the cost of the
van is estimated at \$36,500. natalie would spend an additional \$2,500 to have the van painted. in
addition, she wants the back seat of the van removed so that she will have lots of room to transport
her mixer inventory as well as her baking supplies.the cost of taking out the back seat and
installing shelving units is estimated at \$1,500. she expects the van to last about 5 years, and she
expects to drive it for 200,000 miles.the annual cost of vehicle insurance will be \$2,400. natalie
estimates that at the end of the 5-year useful life the van will sell for \$7,500. assume that she will
buy the van on august 15, 2013, and it will be ready for use on september 1, 2012.
natalie is concerned about the impact of the van’s cost on her income statement and balance
sheet. she has come to you for advice on calculating the van’s depreciation.
instructions
(a) determine the cost of the van.
(b) prepare three depreciation tables for 2012, 2013 and 2014: one for straight-line depreciation
(similar to the one in illustration 10-10), one for double-declining balance depreciation
(illustration 10-14), and one for units-of-activity depreciation (illustration 10-12). for unitsof-
activity, natalie estimates she will drive the van as follows: 15,000 miles in 2012; 45,000
miles in 2013; 50,000 miles in 2014; 45,000 miles in 2015; 35,000 miles in 2016; and 10,000 miles
in 2017. recall that cookie creations has a december 31 year-end.
(c) what impact will the three methods of depreciation have on natalie’s balance sheet at
december 31, 2012? what impact will the three methods have on natalie’s income statement
in 2012?
(d) what impact will the three methods of depreciation have on natalie’s income statement over
the van’s total 5-year useful life?
(e) what method of depreciation would you recommend natalie use?
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Price Type: Negotiable

Completed
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