Zedel Delivery Services Has a December 31, 2014 Year End

Essay

Zedel Delivery Services has a December 31, 2014 year end. On January 1, 2014, Zedel has a delivery van with a cost of $35,000 and accumulated depreciation of $12,000. The van was expected to have a residual value of $5,000 and a useful life of 5 years. Zedel uses straight-line depreciation. Zedel plans to replace its delivery van on April 1, 2014, and is considering two alternatives.
1. Zedel has been offered $14,000 for the old van. If Zedel accepts this offer, Zedel would then purchase a replacement for $50,000 cash.
2. Trade the old van for a new one. The dealer will allow a $22,000 trade-in allowance on the old van, and Zedel will have to pay additional cash of $28,000.
Instructions
a. Record the updated depreciation on the old van to April 1, 2014.
b. Record the disposal of the van under each of the two alternatives.
c. Which alternative do you recommend and why?