Reference no: EM132856886

Long-term AssetsYou are thinking of buying a van that will be used only for business.

1. The cost of the van is estimated at $36,500.
2. You would spend an additional $2,500 to have the van painted.
3. In addition, you want the back seat of the van removed so that she will have lots of room to transport your mixer inventory as well as your catering supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,500.
4. You expect the van to last about 5 years, and you expect to drive it for 200,000 miles.
5. The annual cost of vehicle insurance will be $2,400.
6. You estimate that at the end of the 5-year useful life the van will sell for $7,500. Assume that you will buy the van on August 15, 2021, and it will be ready for use on September 1, 2021.

You are concerned about the impact of the van's cost on your income statement and balance sheet. You will need to calculate the van's depreciation.

Problem 1. What is the cost the cost of the van?

Problem 2. What impact will the three methods of depreciation have on your business' balance sheet at December 31, 2021? What impact will the three methods have on your income statement in 2021?

Problem 3. What impact will the three methods of depreciation have on your income statement over the van's total 5-year useful life?

Problem 4. What method of depreciation would you use and why?