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Problem 11-22 Weakness of the straight-line depreciation method (LO 11-1, LO 11-7) Skip to question [The following information applies to the questions displayed below.] Zeff Company purchases a delivery van on January 1, 20X1, at a cost of $15,849. It has a useful life of four years and no estimated salvage value. When making the purchase decision, the company anticipated that the use of the van would generate a revenue (cash) inflow of $5,000 each year, assumed to occur at the end of the year. The discount rate that equates the purchase price to the expected cash inflows is 10%. Assume that depreciation is the company’s only expense for the year. Use the following links to the present value tables to calculate answers. (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.) Requirement 1 Required: Using straight-line depreciation, do the following for each of the four years: Compute accumulated depreciation and the net book value of the van. Prepare Zeff’s income statement assuming that the $5,000 expected inflows occur. Compute the return on beginning net fixed assets.
