Reference no: EM132406452
Question
On January 1, 2010, Dragon Company paid cash to purchase an automobile. The car dealer gave Dragon a $1,000 cash discount off the $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.
1. What is the cost of the car that Dragon Company will record?
2. Under the straight line method of depreciation, how much depreciation expense will Dragon have each year of the car's use?
3. Under the double declining balance method of depreciation
a. What is the percentage depreciation Dragon will use?
b. At the end of the first year, how much depreciation expense will Dragon have for the car?
c. At the end of the first year, what will be the book value the car?
d. At the end of the second year, how much depreciation expense will Dragon have for the car?
e. At the end of the second year, what will be the book value the car?
4. Under the units of production method of depreciation
a. How much depreciation will Dragon have for each mile driven of the car?
b. How much depreciation expense will Dragon have in the last three years under this method?
5. When Dragon sold the car, what did it recognize and for how much?
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