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 $326,000 cash plus $13,040 in sales tax and $1,500 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 $4,000 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 $1,200. Dec. 31 Recorded annual straight-line depreciation on the loader. 2017 Jan. 1 Paid $4,300 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years. Feb. 17 Paid $1,075 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.

Explanation / Answer

Jan 01, 2016 Equipment 3,40,540 Cash 3,40,540 Jan 03, 2016 Equipment 4,000 Cash 4,000 Dec 31, 2016 Depreciation expense—Equipment 77,685 =(340540+4000-33800)/4 Accumulated depreciation—Equipment 77,685 Jan 01, 2017 Equipment 4,300 Cash 4,300 Feb 17, 2017 Repairs expense—Equipment 1075 Cash 1,075 Dec 31, 2017 Depreciation expense—Equipment 47,471 =(340540+4000+4300-33800-77685)/5 Accumulated depreciation—Equipment 47,471

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