A truck was acquired on July 1, 2009, at a cost of $216,000. The truck had a six

Question

A truck was acquired on July 1, 2009, at a cost of $216,000. The truck had a six-year useful life and an estimated salvage value of $24,000. The straight-line method of depreciation was used. On January 1, 2012, the truck was overhauled at a cost of $20,000, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at $24,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned.

Instructions
Prepare the appropriate entries for January 1, 2012 and December 31, 2012.

Please show detialed solutions.

Explanation / Answer

After 3 years, accumulated depreciation was (216,000- 24,000)/6 *3= 96,000 So undepreciated value was 216,000-96,000= 120,000. Now useful life is 5 years, and the 20,000 cost will be used to reduce depreciation and the value will be 216,000- 76,000= 140,000. So we have (140,000- 24,000)/5= 23,200 per year. Entries would be on Jan 1 DR Accumulated depreciation 20,000 CR Cash 20,000 Dec 31 DR Depreciation expense 23,200 CR Accumulated depreciation 23,200

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