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

Question

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

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

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Archived Solution

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]

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