On March 31, 2011, Wild Flowers purchases a delivery van for $30,000, which it e

Question

On March 31, 2011, Wild Flowers purchases a delivery van for $30,000, which it expects to use for 5 years, during which time it expects to drive the van about 100,000 miles. At the end of the 5 years it is expected that the van will be sold for $2,000. During 2011 the van was driven 12,000 miles, and in 2012 it was driven 25,000 miles. Assume Wild Flowers only prepares annual financial statements, and that their year-end is the calendar year-end (i.e. December 31).

Assume that the amount of depreciation recorded at 12/31/11 (i.e. first year depreciation) = $5,000. Which one of the following statements is incorrect (false)?

a. The carrying value of the van at 12/31/11 = $25,000

b. The adjusted basis (book value) of the van at 12/31/11 = $25,000

c. If Wild Flowers had used the straight-line method in calculating the $5,000, it could change to the double declining balance method in 2012 if it felt that it was going to use the van much more in 2012 than it was used in 2011

d. $5,000 would be included in selling expenses on the income statement

Explanation / Answer

Assume that the amount of depreciation recorded at 12/31/11 (i.e. first year depreciation) = $5,000. Which one of the following statements is incorrect (false)? c. If Wild Flowers had used the straight-line method in calculating the $5,000, it could change to the double declining balance method in 2012 if it felt that it was going to use the van much more in 2012 than it was used in 2011

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