Transactions for Fixed Assets, Including Sale The following transactions, adjust
ID: 2370665 • Letter: T
Question
Transactions for Fixed Assets, Including Sale
The following transactions, adjusting entries, and closing entries were completed by King Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used.
2010
Jan. 4.
Purchased a used delivery truck for $61,440, paying cash.
Feb. 24.
Paid garage $220 for changing the oil, replacing the oil filter, and tuning the engine on the delivery truck.
Dec. 31.
Recorded depreciation on the truck for the fiscal year. The estimated useful life of the truck is 8 years, with a residual value of $12,900 for the truck.
2011
Jan. 3.
Purchased a new truck for $70,560, paying cash.
Mar. 7.
Paid garage $330 to tune the engine and make other minor repairs on the used truck.
Apr. 30.
Sold the used truck for $40,440. (Record depreciation to date in 2011 for the truck.)
Dec. 31.
Record depreciation for the new truck. It has an estimated trade-in value of $12,700 and an estimated life of 7 years.
2012
July 1.
Purchased a new truck for $81,000, paying cash.
Oct. 7.
Sold the truck purchased January 3, 2011, for $41,700. (Record depreciation for the year.)
Dec. 31.
Recorded depreciation on the remaining truck. It has an estimated residual value of $14,600 and an estimated useful life of 10 years.
Instructions:
Journalize the transaction and the adjusting entries.
2010
Jan. 4.
Purchased a used delivery truck for $61,440, paying cash.
Feb. 24.
Paid garage $220 for changing the oil, replacing the oil filter, and tuning the engine on the delivery truck.
Dec. 31.
Recorded depreciation on the truck for the fiscal year. The estimated useful life of the truck is 8 years, with a residual value of $12,900 for the truck.
2011
Jan. 3.
Purchased a new truck for $70,560, paying cash.
Mar. 7.
Paid garage $330 to tune the engine and make other minor repairs on the used truck.
Apr. 30.
Sold the used truck for $40,440. (Record depreciation to date in 2011 for the truck.)
Dec. 31.
Record depreciation for the new truck. It has an estimated trade-in value of $12,700 and an estimated life of 7 years.
2012
July 1.
Purchased a new truck for $81,000, paying cash.
Oct. 7.
Sold the truck purchased January 3, 2011, for $41,700. (Record depreciation for the year.)
Dec. 31.
Recorded depreciation on the remaining truck. It has an estimated residual value of $14,600 and an estimated useful life of 10 years.
Explanation / Answer
Remember when you sell an asset you have to bring it's book value up to date. The book value is The purchase price of the asset minus the up to date depreciation.
Double Declining Balance Depreciation Method Formula...
Depreciation Base * (2 * 100% / Useful Life of Asset in Years)
SAMPLE ILLUSTRATION
2008
Jan 6 Purchased a used delivery truck for $24000 Paying cash
Jan 19 Paid garage $500 for miscellaneous repairs to the truck
Dec 31 Recorded depreciation of the truck for the year. The estimated useful life of the truck is four years, with a residual value of the truck of $4000
2009
Jan 2 Purchased a new truck for $69,000 paying cash
Aug 1 Sold the used truck for $10250,(Record depreciation to date 2009 for the truck)
Oct 24 Paid garage $415 for miscellaneous repairs to the truck
Dec 31 Record depreciation of the new truck. The estimated residual value of $15,000 and estimated life of 5 years.
2010
July 1 Purchased a new truck for $70,000, paying cash
Oct 1 Sold the truck purchased jan 2, 2009 for $25,000(record deprecation of the year)
Dec 31 Record depreciation of the remaining truck. It has an estimated residual value of $18,000 and an estimated useful life of 8 years.
SOLUTION
Jan6.
Dr. Truck 24000
Cr. Cash 24000
Jan19
Dr. Auto Repair expense 500
Cr. Cash 500
Dec31
Dr. Amortization expense 12000
Cr. Accumulated Amortization 12000
24000* .50
Double declining rate= 200%/4 years= .50
Year 2009
Jan 2
Dr. Truck-new 69000
Cr. Cash 69000
Aug1
Dr. Cash 10,250
Dr. Accumulated Amortization 15,500
Cr. Gain on sale 1,750
Cr. Truck-old 24,000
24000-12000(2008 depreciation)= 12000
12000*.50*7/12( Jan-July Depreciation) = 3500
12000+ 3500= 15500
Loss/gain= cash given- book value
10,250-(24000-15500) = 1750
Oct 24
Dr. Auto Repair Expense 415
Cr. Cash 415
Dec31
Dr. Amortization Exense 27600
Cr. Accumulated Amortization 27600
69000*.04= 27600
Double Declining rate= 200%/ 5 years= .40
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