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Homework answers / question archive / Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business

Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business

Accounting

Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business. 2014 Jan. 1 Paid $274,000 cash plus $10,960 in sales tax and $1,900 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $27,400 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. 2015 Jan. 1 Paid $4,600 to overhaul the loader's engine, which increased the loader's estimated useful life by two years. Feb. 17Paid $1,150 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 Paid $274,000 cash plus $10,960 in sales tax and $1,900 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $27.400 salvage value. Loader costs are recorded Note: Enter debits before credits. General Journal Debit Credit Date Jan 01, 2014 Record entry View general journal Clear entry

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Date Account title and explanation Debit Credit
Jan 1,2014 Equipment $286,860  
  Cash   $286,860
  [To record purchase of equipment]    
       
Jan 3,2014 Equipment $4,000  
  Cash   $4,000
  [To record purchase of air-conditioner for loader]  
       
Dec 31,2014 Depreciation Expense [(290,860 - $$28,600)/4] $65,565  
  Accumulated depreciation-equipment   $65,565
  [To record depreciation Expense]    
       
Jan 1,2015 Equipment $4,600  
  Cash   $4,600
  [To record overhaul expense]    
       
Feb 17, 2015 Repair expense $1,150  
  Cash   $1,150
  [To record repair expense]    
       
Dec 31, 2015 Depreciation Expense $40,259  
  Accumulated depreciation-equipment   $40,259
  [To record depreciation Expense]    

Calculations:

For 2014
Purchase price $274,000
Sales tax $10,960
Transportation cost $1,900
Air conditioner $4,000
Total cost on Jan 3 $290,860
Salvage value (27400+4000) ($28,600)
Deprciable value on Dec 31, 2014 $262,260
÷ Estimated useful life 4 years
= Depreciation expense for 2014 $65,565
 
For 2015
Cost $290,860
Accumulated Depreciation ($65,565)
Book value on Jan 1,2015 $225,295
Overhaul $4,600
Total Book value on Jan 1,2015 $229,895
Salvage value ($28,600)
Depreciable value for 2015 $201,295
÷ Remaining useful life (4+2 years -1 year) 5 years
= Depreciation expense $40,259

*Expenditure should be capitalized only if it increases the value of the Asset.

So, Air conditioner expense and Overhaul Expenses are capitalized.

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