Chen Company completed the following transactions and events involving its deliv
ID: 2384632 • Letter: C
Question
Chen Company completed the following transactions and events involving its delivery trucks.2010
June 1 Paid $19,415 cash plus $1,165 in sales tax for a new delivery truck estimated to have a five-year life and $3,000 Salvage value. Delivery truck costs are recorded in the Trucks account.
Dec. 31 Recorded annual straight-line depreciation on the truck.
2011
Dec. 31 Due to new information obtained earlier in the year, the truck's estimated useful life was changed from 5 to 4 years, and the estimated salvage value was increased to $3,500. Recorded annual straight-line depreciation on the truck.
2012
Dec. 31 Recorded annual straight-line depreciation on the truck.
Dec. 31 Sold the truck for $6,200 cash.
Explanation / Answer
2010
June 1 Paid $19,415 cash plus $1,165 in sales tax for a new delivery truck estimated to have a five-year life and $3,000 Salvage value. Delivery truck costs are recorded in the Trucks account.
Debit: Trucks 20,580
Credit: Cash 20,580
Dec. 31 Recorded annual straight-line depreciation on the truck.
Annual straight-line depreciation = (20,580 – 3000)/5 = 3516
From June 1 to Dec 31 equals 7 months, so depreciation the first year is 3516*7/12 = 2051
Debit: Depreciation expense 2051
Credit: Accumulated Depreciation 2051
2011
Dec. 31 Due to new information obtained earlier in the year, the truck's estimated useful life was changed from 5 to 4 years, and the estimated salvage value was increased to $3,500. Recorded annual straight-line depreciation on the truck.
Current book value = 20580 – 2051 = 18529, 3 out of 4 years left so:
New Annual straight line depreciation = (18529-3500)/3 = 5010
Debit: Depreciation Expense 5010
Credit Accumulated Depreciation 5010
2012
Dec. 31 Recorded annual straight-line depreciation on the truck.
Debit: Depreciation expense 5010
Credit: Accumulated Depreciation 5010
Dec. 31 Sold the truck for $6,200 cash.
Accumulated depreciation = 2051 + 5010 + 5010 = 12071
Debit: Accumulated Depreciation 12071
Debit: Cash 6200
Debit: Loss on sale 2309
Credit: Trucks 20580
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