Calculate the depreciation expense

Alexander, Inc., whose year-end is December 31, purchased a delivery truck on May 2, 2010. The invoice price was $63,500 and included dealer prep and destination charges of $4,850. Alexander also paid sales tax of $4,785, registration fees of $395, and a $100 fee to obtain a title. On May 5, 2010, the company installed air conditioning in the truck at a cost of $2,850. On January 10, 2013, the company installed a new transmission in the truck at a cost of $5,000 and paid $375 for a tune-up of the engine. Alexander uses straight-line depreciation and the midyear convention. The estimated useful life of the truck is eight years with a $6,000 salvage value.


A. Determine the dollar amount that should be capitalized to the Truck account in May 2010.

B. Calculate the depreciation expense to be recorded for 2010.

C. Should Alexander account for the expenditures made in January 2013 as capital or revenue expenditures?

D. If the useful life of the truck was extended two years by the installation of the new transmission, calculate the depreciation expense for 2013, assuming that the salvage value did not change.


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