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Vsevolod
9 days ago
15

On January 1, 2010, Dragon Company paid cash to purchase an automobile. The car dealer gave Dragon a $1,000 cash discount off th

e $19,000 list price. However, Dragon paid an additional $2,000 to equip the car with a more luxurious interior so it would have greater appeal. Dragon Company expected the car to have a five-year useful life and a $5,000 salvage value. Dragon also expected to use the car for 150,000 miles before disposing of it. Dragon used the car, and it was driven 50,000 / 10,000 / 40,000 / 30,000 / 20,000 miles during each use year respectively. Dragon sold the car on January 1, 2015, for $4,500 cash.
Required:
a. What is the cost of the car that Dragon Company will record?
b. Under the straight line method of depreciation, how much depreciation expense will Dragon have each year of the car's use?
Business
1 answer:
Free_Kalibri [3.4K]9 days ago
6 0
a. $20,000. b. $3,000. The cost for an item of Property, Plant, and Equipment encompasses the purchase price and any expenses related to making the asset operational as intended by management. To calculate the car's expense: Purchase Price $19,000, Less Trade Discount $1,000, leading to a Net of $18,000, plus an extra $2,000 for a luxe interior brings the Total Cost to $20,000. Regarding depreciation, using the straight-line method, the fixed expense amortized yearly from the cost is determined by the equation (Cost - Residual Value) / Estimated Useful Life, which yields ($20,000 - $5,000) / 5 = $3,000 annually.
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