Posted by smeffy on .
Can someone help me with this problem. At least get me started so I can figure out how to do this. Your manager, Mr. Smith, has asked you to prepare a report, for a client, based on the following inquiry (see below). This report will be reviewed by Mr. Smith and used to determine your progress in the last 6 months.
Good Time Adventures currently owns a 10-passenger van that is used to transport clients to and from its outdoor adventure sites. The van was purchased 5 years ago at a cost of $20,000. At that time, its useful life was estimated to be 5 years with a salvage value of $5,000.
The van is in need of some major repairs. It needs a new engine and transmission, new tires, and other minor miscellaneous maintenance. The engine and transmission are estimated to cost $4,000 and will extend the useful life of the van by 5 years. The new tires and other repairs are estimated to cost $1,200. The estimated salvage value at the end of the 5 years is $7,000.
Good Time Adventures is trying to decide if it should repair the existing van or trade it in for a new van. A local dealer has offered a trade-in value of $6,000 on the old van with a purchase of a new van costing $30,000. If the new van is purchased, Good Time Adventures plans to depreciate it using the units of production method. The units would be based on the number of miles driven. The new van is expected to have a salvage value of $10,000 after its useful life of 100,000 miles.
Prepare a 750–1,000 word report for your manager.
For full-credit, you must discuss/explain and calculate the following:
Show the calculations for
depreciation expense for the existing van (how depreciation is currently being expensed).
the repaired van (depreciation expense if the existing van is repaired).
the new van (explain how depreciation would be calculated if the new van is purchased).
Show the journal entries you would record if
the existing van is repaired.
a new van is purchased.
Explain how you record each of the decision options:
Repair the existing van.
Trade in the van for a new van.
Explain how you would account for the repairs on the existing van. Are they expenses, assets, or both?
Recommend a course of action regarding the van.