South Seas Distributors completed the following transactions involving the purch

Question

South Seas Distributors completed the following transactions involving the purchase and operation of a delivery truck:

Problem:

Prepare journal entries to record the above transactions.

2015 May 27 Paid S35,600 for a new truck. It was estimated that the truck would be sold for $15,000 after four years. June 9 Dec. 31 Recorded straight-line depreciation on the truck. 2016 Apr. 5 Paid S650 for repairs to the truck's fender, which was damaged when the driver scraped a loading dock. July 23 Paid S8,000 to have a refrigerating unit installed in the truck. This increased the truck's estimated resale value by $1,000 Dec. 31 Recorded straight-line depreciation on the truck. Transaction Description Paid S3,500 to have special racks installed in the truck. The racks did not increase the truck's estimated resale value, but were necessary to minimize the damage from products shifting during transit. The truck was put into service after the racks were installed.

Explanation / Answer

Ans. Journal Entries Account Titles Dr. ($) Cr. ($) 2015 27-May Truck      35,600     To Cash      35,600 (Being purchase of truck in cash) 9-Jun Repair and Maintenance         3,500     To Cash         3,500 (Being expenses incurred for special racks installed) 31-Dec Depreciation         5,092       To Truck         5,092 (Being Depreciation charge on truck W.N.1) 31-Dec P & L         5,092     To Depreciation         5,092 (Being depreciation transferred to P&l ) 2016 5-Apr Repair and Maintenance            650     To Cash            650 (Being expenses incurred for repairing of truck fender) 23-Jul Truck         8,000     To Cash         8,000 (Being installation of refigerating unit in the truck) 31-Dec Depreciation         6,900       To Truck         6,900 (Being Depreciation charge on truck W.N.2) 31-Dec P & L         6,900     To Depreciation         6,900 (Being depreciation transferred to P&l ) Working Note: 1) Depreciation for the year 2015 : = {( $35,600 - $15,000)/4} x 218/365 = $5,092 2) Depreciation for the year 2016 : = ( $35,600 + $8,000) - ($15,000 + $1,000)/4 = $6,900

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