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Homework answers / question archive / Problem A GBC purchases a truck for cash
Problem A GBC purchases a truck for cash. The price for the truck is $30,000, sales taxes are $1,200, painting the logo is $800, tags cost $120 and insurance for the first year is $2,000. a) Show the journal entry to record the preceding transaction b) Prepare a depreciation schedule assuming a 5-year life, straight-line depreciation, and a salvage value of $2,000 c) Prepare the journal entry to record depreciation for the first year assuming the purchase was made July 1 d) Show the journal entry to record the disposal of the truck if it is sold for $10.000 at the end of its useful life. I Problem B Assume the same facts as problem A. a) Prepare a depreciation schedule using the declining balance method. b) Assuming a useful life of 100,000 miles, prepare a depreciation schedule assuming the following miles of usage in years one through five, in order: 25,000;30,000:10,000: 20,000) 15,000
| Cost of Asset | $30,000 |
| Add: | |
| Sales tax | $1,200 |
| Painting | $800 |
| Log | $120 |
| Insurance | $2,000 |
| Cost of Asset | $34,120 |
Depreciation cost of asset
| Cost of Asset | $34,120 |
| Less:Salvage value | $2,000 |
| Depreciation cost | $32,120 |
A
a)
| Date | General Journal | Debit | Credit |
| Year 1 | Truck | $34,120 | - |
| Cash | - | $34,120 | |
| (To record purchase of truck) |
b) Straight Line Depreciation Schedule
| Depreciation for the Year | ||||||||
| Date | Asset Cost | Depreciable Cost | / | Useful life | = | Depreciation Expenses | Accumulated Deperciation | Book value |
| Year 1 | $34,120 | - | - | - | - | - | - | $34,120 |
| Year 1 | - | $32,120 | / | 5 | = | $6,424 | $6,424 | $27,696 |
| Year 2 | - | $32,120 | / | 5 | = | $6,424 | $12,848 | $21,272 |
| Year 3 | - | $32,120 | / | 5 | = | $6,424 | $19,272 | $14,848 |
| Year 4 | - | $32,120 | / | 5 | = | $6,424 | $25,696 | $8,424 |
| Year 5 | - | $32,120 | / | 5 | = | $6,424 | $32,120 | $2,000 |
c)
| Date | General Journal | Debit | Credit | |
| Year 1 Dec -31 | Depreciation | $3,212 | - | Deperciation for half year |
| Accumulated depreciation | - | $3,212 | ||
| (To record purchases of truck) |
d)
| Date | General Journal | Debit | Credit |
| Year 5 | Cash | $10,000 | - |
| Accumulated depreciation | $32,120 | - | |
| Gain on sale of truck | - | 8000 | |
| Accumulated depreciation | - | $34,120 | |
| (To record purchases of truck) |
Savage value of $2,000 is assumed
B Double Declining Balance Depreciation Schedule
| Deperciation for the year | ||||||||
| Date | Asset Cost | Beginning book value | x | DDB rate | = | Deperciation Expenses | Accumulated Depreciation | Book Value |
| Year 1 | $34,120 | - | x | - | - | - | $34,120 | |
| Year 1 | - | 34,120 | x | 40% | = | $13,648 | $13,648 | $20,472 |
| Year 2 | - | 20,472 | x | 40% | = | $8,189 | $21,837 | $12,283 |
| Year 3 | - | 12,283 | x | ???????40% | = | $4,913 | $26,750 | $7,370 |
| Year 4 | - | 7,370 | x | ???????40% | = | $2,948 | $29,698 | $4,442 |
| Year 5 | - | 4,422 | x | = | $2,422 | $32,120 | $2,000 |
DDB rate = 1 /5 * 2 =40%
Units - of - production Depreciation Schedule
2
| Depreciation for the Year | ||||||||
| Date | Asset Cost | Depreciation rate per mile | x | Total miles Usage | = | Depreciation Expenses | Accumulated Depreciation | Book value |
| Year 1 | $34,120 | - | - | - | - | - | - | $34,120 |
| Year 1 | - | $0.3212 | x | 25,000 | = | $8,030 | $8,030 | $26,090 |
| Year 2 | - | $0.3212 | x | 30,000 | = | $9,636 | $17,666 | $16,454 |
| Year 3 | - | $0.3212 | x | 10,000 | = | $3,212 | $20,878 | $13,242 |
| Year 4 | - | $0.3212 | x | 20,000 | = | $6,424 | $27,302 | $6,818 |
| Year 5 | - | $0.3212 | x | 15,000 | = | $4,818 | $32,120 | $2,000 |
| Deperciation per mileage | per mile | |
| Total Depreciation cost | $32,120 | $0.3212 |
| Total miles | 100,000 |
