Textbook Problem

Communication

Godwin Co. owns three delivery trucks. Details for each truck at the end of the most recent year follow:

	Age	Expected Useful Life	Initial Cost	Accumulated Depreciation
Truck 1	3	6	$22,500	$11,250
Truck 2	5	6	26,250	21,875
Truck 3	2	6	28,500	9,500

• At the beginning of the year, a hydraulic lift is added to Truck 1 at a cost of $4,500. The addition of the hydraulic lift will allow the company to deliver much larger objects than could previously be delivered.
• At the beginning of the year, the engine of Truck 2 is overhauled at a cost of $5,000. The engine overhaul will extend the truck’s useful life by three years.

Write a short memo to Godwin’s chief financial officer explaining the financial statement effects of the expenditures associated with Trucks 1 and 2.