Champion Contractors completed the following transactions and events involving t

Question

Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business 2016 Jan. 1 Paid $310,000 cash plus $12,400 in sales tax and $1,800 in transportation (FOB shipping point) for a new loader The loader is estimated to have a four-year life and a $31,000 salvage value. Loader costs are recorded in the Equipment account. Jan. 3 Paid $3,000 to enclose the cab and install air conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $900. Dec. 31 Recorded annual straight-line depreciation on the loader 2017 Jan. 1 Paid $4,000 to overhaul the loader's engine, which increased the loader's estimated useful life by two years. Feb. 17 Paid $1,000 to repair the loader after the operator backed it into a tree. Dec. 31 Recorded annual straight-line depreciation on the loader . Required: Prepare journal entries to record these transactions and events. View transaction list Journal entry worksheet 4 6

Explanation / Answer

Answer:

Date

General Journal

Debit

Credit

1-Jan-16

Equipment

324200

Cash

324200

($310,000 +$12,400 +$1,800)

3-Jan-16

Equipment

3000

Cash

3000

31-Dec-16

Depreciation expense—Equipment

73825

Accumulated depreciation—Equipment

73825

1-Jan-17

Equipment

4000

Cash

4000

17-Feb-17

Repairs expense—Equipment

1000

Cash

1000

31-Dec-17

Depreciation expense—Equipment

45095

Accumulated depreciation—Equipment

45095

Working notes for the above answer is as under

1

  2016 depreciation after January 3rd betterment

  Total original cost

324200

  Plus cost of betterment

3000

  Revised cost of equipment

327200

  Less revised salvage ($31,000 + $900)

31900

  Cost to be depreciated

295300

  Annual depreciation ($295300 / 4 years)

73825

2

  2017 depreciation after January 1st extraordinary repair

  Total cost ($327200 + $4000)

331200

  Less accumulated depreciation

73825

  Book value

257375

  Less salvage

31900

  Remaining cost to be depreciated

225475

  Revised remaining useful life
(Original 4 years – 1yr. + 2yrs.)

5

  Revised annual depreciation ($225475 / 5 yrs) (rounded)

45095

Date

General Journal

Debit

Credit

1-Jan-16

Equipment

324200

Cash

324200

($310,000 +$12,400 +$1,800)

3-Jan-16

Equipment

3000

Cash

3000

31-Dec-16

Depreciation expense—Equipment

73825

Accumulated depreciation—Equipment

73825

1-Jan-17

Equipment

4000

Cash

4000

17-Feb-17

Repairs expense—Equipment

1000

Cash

1000

31-Dec-17

Depreciation expense—Equipment

45095

Accumulated depreciation—Equipment

45095

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