Taylor Construction purchased a truck for $64,000 on January 1, 2016. Taylor installed a custom towing package
Question:
Taylor Construction purchased a truck for $64,000 on January 1, 2016. Taylor installed a custom towing package and a winch for an additional $2,667. Sales tax was 5% of the selling price. The annual commercial vehicle license and insurance were an additional $2,500. The truck had an estimated useful life of eight years and a residual value of $11,000. Taylor expects the truck to run for 200,000 miles. Taylor uses double-declining-balances depreciation and expenses all repairs and maintenance costs under $2,000. Taylor incurred the following additional costs over the life of the truck:
Date | Description | Cost |
12/31/17 | New tires | $ 1,500 |
12/31/19 | New engine | $ 10,000 |
12/31/19 | New tires | $ 1,500 |
Required:
Assume the estimated residual value and useful life remain constant over the truck’s life and that truck was sold for $20,000 on December 31, 2020. Complete the following table.
Depreciation Maintenance Expense Gain/(Loss) on Sale Net Expense
2016
2017
2018
2019
2020 ___________ ___________________ ________________ __________
Total
Repeat Questions #1 assuming Taylor depreciates the truck based on the number of miles driven. The following table shows the number of miles driven by year:
Year | Miles Driven |
2016 | 50,000 |
2017 | 35,000 |
2018 | 15,000 |
2019 | 60,000 |
2020 | 20,000 |
The CEO of Taylor is paid a year-end bonus based on the firm’s net profit margin ratio. She has been lobbying the CFO to switch to straight-line depreciation. Explain why she would prefer straight-line depreciation to either declining-balance or units-of-production.
Prepare the journal entries necessary to record the sale of the truck for $20,000 under both option (1) and (2) on December 31, 2020.
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young