Beach Front Foods Inc. has decided to add a delivery service to its business. In 2020 the company purchased a car to use to deliver customer orders. The purchase price of the car was $42,000, which includes non-refundable taxes of $5,800. The car was painted with the store logo for $1,000 and an additional $750 was spent on the annual license fee. During the year they spent $3,000 on gas and $1,000 on maintenance costs. They expect to drive the car 200,000 kilometres and have a residual value of $5,000. In 2020, they drove 27,500 km.
Instructions
a) Calculate the cost of the asset to Beach Front. Provide brief support for all items included in the cost and the reason any costs are not included.
b) Record the depreciation expense for 2020 using the units-of-activity method.

Question

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The Answer of Beach Front Foods Inc. has decided to add a delivery service to its business. In 2020 the company purchased a car to use to deliver customer orders. The purchase price of the car was $42,000, which includes non-refundable taxes of $5,800. The car was painted with the store logo for $1,000 and an additional $750 was spent on the annual license fee. During the year they spent $3,000 on gas and $1,000 on maintenance costs. They expect to drive the car 200,000 kilometres and have a residual value of $5,000. In 2020, they drove 27,500 km.
Instructions
a) Calculate the cost of the asset to Beach Front. Provide brief support for all items included in the cost and the reason any costs are not included.
b) Record the depreciation expense for 2020 using the units-of-activity method.