Demonstration Problem and solution for Chapter 6

Demonstration Problem and solution for Chapter 6 -...

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Demonstration Problems for Chapter 6 Demonstration Problem 6-1 Alternative Depreciation Methods The following events pertain to Sanders Rental Company (SRC). 1. SRC was started when it issued common stock for $21,000 cash. 2. On January 1, 2005, SRC paid cash to purchase an automobile. The car dealer gave SRC a $1,000 cash discount off the $19,000 list price. However, SRC paid an additional $2,000 to equip the car with a more luxurious interior so it would have greater appeal to its clientele. Sanders Rental Company expected the car to have a four-year useful life and a $4,000 salvage value. SRC expected to lease the car for 100,000 miles before disposing of it. 3. SRC leased the car to a customer who drove it 30,000 / 10,000 / 40,000 / 25,000 miles during 2005, 2006, 2007, and 2008, respectively. SRC sold the car on January 1, 2009, for $4,300 cash. 4. Assume SRC recognized depreciation expense using one of three separate scenarios. The revenue stream and amounts of cash flows assumed for each scenario are shown below: Revenue Stream Scenario 2005 2006 2007 2008 1 $ 7,200 $7,200 $7,200 $7,200 2 $13,200 $8,200 $4,200 $3,200 3 $ 8,000 $4,800 $9,600 $6,400 Use the following depreciation method for each of the scenarios. Scenario Depreciation Method 1 Straight-Line 2 Double-Declining-Balance 3 Units-of-Production Required Prepare income statements, balance sheets, and statements of cash flows for 2005 through 2009 for each of the three scenarios.
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