Chapter 08 Reporting and Interpreting Property Plant and Equipment Intangibles and Natural Resources CHAPTER 8 REPORTING AND INTERPRETING PROPERTY PLANT AND EQUIPMENT INTANGIBLES AND NATURAL RESOURCES HANDOUT 8 1 DEPRECIATION METHODS AND GAIN OR LOSS ON SALE Joel Harvey Florists ordered a truck at an invoice price of 11 000 On the date of delivery January 2 Year 1 the company paid 1 000 on the truck with the balance on credit at 10 percent interest due in six months On January 3 Year 1 the company paid 500 for freight on the truck On January 4 Year 1 the company paid 250 to paint the company name on the side of the truck and started using it to make deliveries On January 5 the company paid 125 to fix a flat tire on the truck On July 2 Year 1 the company paid the balance due on the truck plus the interest The estimated useful life of the truck was five years and the residual value was 1 750 Assume that the estimated productive life of the machine was 100 000 miles Actual annual usage was 15 000 miles hours in Year 1 25 000 miles in Year 2 30 000 miles in Year 3 25 000 miles in Year 4 and 5 000 miles in Year 5 On December 31 Year 5 Joel Harvey sold the truck for 3 000 cash 1 Compute the acquisition cost of the truck 2 Compute the annual depreciation expense for each of the years 1 through 5 using each of the following methods Straight line McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC 8 1 Chapter 08 Reporting and Interpreting Property Plant and Equipment Intangibles and Natural Resources Unit of production Declining balance 3 Compute the gain or loss on sale McGraw Hill LLC All rights reserved No reproduction or distribution without the prior written consent of McGraw Hill LLC 8 2
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