Question:
On 9th January, 2010, Swifty Delivery Service purchased a truck at cost of $67,000. Before placing the truck in service, Swifty spent $2,200 painting it, $500 replacing tires, and $5,000 overhauling the engine. The truck should wait in service for 6 years and have a residual value of $14,700. The truck's annual mileage is expected to be 15,000 miles in each of the first 4 years and 10,000 miles in each of the next 2 years--80,000 miles in total. In deciding, which depreciation technique to use, Jerry Speers, the general manager, requests a depreciation agenda for each of the depreciation techniques (straight line, units of production, and double declining balance).
Requirements
1. Purpose a depreciation schedule for each depreciation technique, depreciation expense, showing asset cost, accumulated depreciation, and asset book value.
2. Swifty prepares financial statements using the depreciation technique that reports the hightest total income in the early years of asset use. For income tax purposes, the company uses the depreciation technique that minimizes income taxes in the early years. Suppose the first year that Swifty uses the truck. Check the depreciation methods that meet the general manager's objectives, considering the income tax authorities permit the use of any of the methods.