Montello Inc. purchases a delivery truck for $25,000. The truck has a salvage value of $6,000 and is expected to be driven for 125,000 miles. Montello uses the units-of-production depreciation method, and in year one the company expects the truck to be driven for 26,000 miles; in year two, 30,000 miles; and in year three, 40,000 miles. Consider how the purchase of the truck will impact Montellos depreciation expense each year and what the trucks book value will be each year after depreciation expense is recorded.

Montello Inc. purchases a delivery truck for $15,000. The truck has a salvage value of $3,000 and is expected to be driven for 120,000 miles. Montello uses the units-of-production depreciation method and in year one it expects to use the truck for 23,000 miles. Calculate the annual depreciation expense.

Dunedin Drilling Company recently acquired a new machine at a cost of 350,000. The machine has an estimated useful life of four years or 100,000 hours, and a salvage value of 30,000. This machine will be used 30,000 hours during Year 1, 20,000 hours in Year 2, 40,000 hours in Year 3, and 10,000 hours in Year 4. With DEPREC5 still on the screen, click the Chart sheet tab. This chart shows the accumulated depreciation under all three depreciation methods. Identify below the depreciation method that each represents. Series 1 _____________________ Series 2 _____________________ Series 3 _____________________ When the assignment is complete, close the file without saving it again. Worksheet. The problem thus far has assumed that assets are depreciated a full year in the year acquired. Normally, depreciation begins in the month acquired. For example, an asset acquired at the beginning of April is depreciated for only nine months in the year of acquisition. Modify the DEPREC2 worksheet to include the month of acquisition as an additional item of input. To demonstrate proper handling of this factor on the depreciation schedule, modify the formulas for the first two years. Some of the formulas may not actually need to be revised. Do not modify the formulas for Years 3 through 8 and ignore the numbers shown in those years. Some will be incorrect as will be some of the totals. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as DEPRECT. Hint: Insert the month in row 6 of the Data Section specifying the month by a number (e.g., April is the fourth month of the year). Redo the formulas for Years 1 and 2. For the units of production method, assume no change in the estimated hours for both years. Chart. Using the DEPREC5 file, prepare a line chart or XY chart that plots annual depreciation expense under all three depreciation methods. No Chart Data Table is needed; use the range B29 to E36 on the worksheet as a basis for preparing the chart if you prepare an XY chart. Use C29 to E36 if you prepare a line chart. Enter your name somewhere on the chart. Save the file again as DEPREC5. Print the chart.

Capital versus Revenue Expenditures On January 1, 2014, Jose Company purchased a building for $200,000 and a delivery truck for $20,000. The following expenditures have been incurred during 2016: • The building was painted at a cost of $5,000. • To prevent leaking, new windows were installed in the building at a cost of $10,000. • To improve production, a new conveyor system was installed at a cost of $40,000. • The delivery truck was repainted with a new company logo at a cost of $1,000. • To allow better handling of large loads, a hydraulic lift system was installed on the truck at a cost of $5,000. • The trucks engine was overhauled at a cost of $4,000. Required Determine which of those costs should be capitalized. Also record the journal entry for the capitalized costs. Assume that all costs were incurred on January 1, 2016. Determine the amount of depreciation for the year 2016. The company uses the straight-line method and depreciates the building over 25 years and the truck over six years. Assume zero residual value for all assets. How would the assets appear on the balance sheet of December 31, 2016?

Cost Issues Deskin Company purchased a new machine to be used in its operations. The new machine was delivered by the supplier, installed by Deskin, and placed into operation. It was purchased under a long-term payment plan for which the interest charges approximated the prevailing market rates. The estimated useful life of the new machine is 10 years, and its estimated residual (salvage) value is significant. Normal maintenance was performed to keep the new machine in usable condition. Deskin also added a wing to the manufacturing building that it owns. The addition is an integral part of the building. Furthermore, Deskin made significant leasehold improvements to office space used as corporate headquarters. Required: 1. What costs should Deskin capitalize for the new machine? 2. Explain how Deskin should account for the normal maintenance performed on the new machine. 3. Explain how Deskin should account for the wing added to the manufacturing building. Where should the added wing be reported on Deskins financial statements? 4. Explain how Deskin should account for the leasehold improvements made to its office space. Where should the leasehold improvements be reported on Deskins financial statements?

When depreciation is recorded each period, what account is debited? a. Depreciation Expense b. Cash c. Accumulated Depreciation d. The fixed asset account involved Use the following information for Multiple-Choice Questions 7-4 through 7-6: Cox Inc. acquired a machine for on January 1, 2019. The machine has a salvage value of $20,000 and a 5-year useful life. Cox expects the machine to run for 15,000 machine hours. The machine was actually used for 4,200 hours in 2019 and 3,450 hours in 2020.

IMPACT OF IMPROVEMENTS AND REPLACEMENTS ON THE CALCULATION OF DEPRECIATION On January 1, 20-1, two flight simulators were purchased by a space camp for 77,000 each with a salvage value of 5,000 each and estimated useful lives of eight years. On January 1, 20-2, the hydraulic system for Simulator A was replaced for 6,000 cash and an updated computer for more advanced students was installed in Simulator B for 9,000 cash. The hydraulic system is expected to extend the life of Simulator A three years beyond the original estimate. REQUIRED 1. Using the straight-line method, prepare general journal entries for depreciation on December 31, 20-1, for Simulators A and B. 2. Enter the transactions for January 20-2 in a general journal. 3. Assuming no other additions, improvements, or replacements, calculate the depreciation expense for each simulator for 20-2 through 20-8.

O 3Depreciation calculation methods Millco, Inc., acquired a machine that cost $1,200,000 early in 2016. The machine is expected to last for eight years, and its estimated salvage value at the end of its life is $180,000.Required:a. Using straight-line depreciation, calculate the depreciation expense to be recognized in the first year of the machine’s life and calculate the accumulated depreciation after the fifth year of the machine’s life.b. Using declining-balance depreciation at twice the straight-line rate, calculate the depreciation expense for the third year of the machine’s life.c. What will be the net book value of the machine at the end of its eighth year of use before it is disposed of, under each depreciation method?

DEPRECIATIONA machine purchased by the Hubalol Company originally cost $245,000.Delivery and installation charges amounted to $5000. The declared salvagevalue was $25,000; useful life of the machine was 12 years. At the end of Year4, the company changed its product mix and found that it no longer needed themachine. One of its competitors agreed to buy the machine for $90,000.Compute the book value of the machine at end of Year 4 and determine theloss or gain of depreciation on the sale using:a. Straight-Line Method b. Sinking fund at 8%