Champion Contractors completed the following transactions and events involving t
ID: 2547206 • Letter: C
Question
Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.
2015
2016
Required:
Prepare journal entries to record these transactions and events.
Jan. 1 Paid $326,000 cash plus $13,040 in sales tax and $2,000 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $32,600 salvage value. Loader costs are recorded in the Equipment account. Jan. 3 Paid $5,000 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 $1,500. Dec. 31 Recorded annual straight-line depreciation on the loader.Explanation / Answer
Journal Entries
Date
Account titles and Explanation
Debit
Credit
Jan.1 2015
Equipment
341,040
Cash
341,040
(to record purchase of equipment)
(326,000 + 13,040 + 2,000)
Jan 3 2015
Equipment
5,000
Cash
5,000
(to record the cash paid for enclose the cab and installing air -conditioning in the loader)
Dec 31 2015
Depreciation expense - Equipment
77,985
Accumulated depreciation – Equipment
77,985
(to record the depreciation expenses during the year, See W.N 1)
Jan 1 2016
Equipment
4,800
Cash
4,800
(to record the cost of overhauling the loader’s engine)
Feb 17 2016
Repairs expense
1,200
Cash
1,200
(to record the repairing expense on loader)
Dec 31 2016
Depreciation expense- Equipment
47,751
Accumulated Depreciation- Equipment
47,751
(to record the depreciation expenses during the year, See W.N 2)
Working Notes:
1. Calculation of depreciation on equipment during the year 2015
Cost of equipment purchased
341,040
Add: Install of Air conditioning
5,000
New Cost of equipment
346,040
Salvage Value
32,600
Add: Increase in salvage value due to install of AC
1,500
New Salvage Value
34,100
Estimated life
4 years
Depreciation per year (346,040 - 34,100)/4
$77,985
2. Calculation of depreciation on equipment during the year 2016
Cost of Equipment as on 12/31/2015
346,040
Less: Accumulated depreciation as on 12/31/2015
77,895
Book value of equipment as on 12/31/2015
268,055
Add: Overhauling of loader engine 1/1/2016
4,800
New Book value as on 1/1/2016
272,855
Salvage Value
34,100
Life remaining as on 1/1/2016 (4year – 1year)
3 Years
Add: Increase in estimated life due to overhauling of loader engine
2 years
New estimated life
5 years
Depreciation during the yea 2016 (272,855 – 34,100)/5
47,751
Date
Account titles and Explanation
Debit
Credit
Jan.1 2015
Equipment
341,040
Cash
341,040
(to record purchase of equipment)
(326,000 + 13,040 + 2,000)
Jan 3 2015
Equipment
5,000
Cash
5,000
(to record the cash paid for enclose the cab and installing air -conditioning in the loader)
Dec 31 2015
Depreciation expense - Equipment
77,985
Accumulated depreciation – Equipment
77,985
(to record the depreciation expenses during the year, See W.N 1)
Jan 1 2016
Equipment
4,800
Cash
4,800
(to record the cost of overhauling the loader’s engine)
Feb 17 2016
Repairs expense
1,200
Cash
1,200
(to record the repairing expense on loader)
Dec 31 2016
Depreciation expense- Equipment
47,751
Accumulated Depreciation- Equipment
47,751
(to record the depreciation expenses during the year, See W.N 2)
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