CAPITAL ASSETS PART A Good Grocers Inc. (GGI) has decided to add a delivery serv

Question

CAPITAL ASSETS

PART A

Good Grocers Inc. (GGI) has decided to add a delivery service to its business. On January 1, 2015 it purchased a car to use to deliver customer orders for $42,000, sales taxes were $5,800, they had the car painted with the store logo for $1,000 and spent $750 on the annual license fee. During the year they spent $3,000 on gas and $1,000 on maintenance costs. They expect to drive the car 200,000 kilometres and have no residual value. In 2015 they drove 25,000.

Required:
a. Calculate the cost of the asset to GGI. Provide brief support for all items included in the cost and the reason any costs are not included.
b. Record the depreciation expense for 2015 using the units of activity method.

PART B

Minnie’s Model Co. Purchased a piece of equipment which cost $68,900, has a $4,900 residual value, and an 8-year useful life on January 1, 2015. The company’s year-end is December 31st.

Required :Calculate the depreciation expense for 2015 under:
a. Straight-line
b. Double-declining-balance

PART C

Seau Saddle Co. Purchased a machine on October 1, 2013 for $65,000. It has a $5,000 residual value and a 10-year useful life. On July 1, 2015 the machine is sold for $52,000. The company uses straight-line depreciation and had a December 31st year end.

Required: Prepare the journal entries for 2013 through 2015.

Explanation / Answer

The expenditures incurred upto the car is made capable of delivering the services will be captialise hence gas and maintenance expenses are revenue

Cost of car $42,000 +Sales tax $5,800 + Star logo $1,000 +$750 annual license fee = $49,550 total cost of car

Depreication = $49,550/200,000 *25,000 = $6,193.75

b)(68,900 - $4,900)/8= $8,000

Straight line depreciation $8,000

Double declining rate = 1/8*2 = 25%

Depreciation = 68,900 @25% = $17,225

c)(65,000 - 5,000/ 10) = $6,000 depreciation

Depreciation for year 2013 = 6,000*3/12 = $1,500

Depreciation for year 2014                        = $6,000

Depreciation for year 2015   6,000*6/12   = $3,000

Entries

Date Description Debit Credit Dec 31,2013 Depreciation expense $1,500 to Accumulated depreciation $1,500 Dec 31,2014 Depreciation expense $6,000 To Accumulate depreciation $6,000 June 30 ,2015 Depreciation expense $3,000 To Accumulated depreciation $3,000 July 1 ,2015 Cash $52,000 Accumulated depreciation 10,500 Loss on sale     2,500 To Machine $65,000

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