The following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used.
Year 1
Jan. 4. Purchased a used delivery truck for $28,000, paying cash.
Nov. 2. Paid garage $675 for miscellaneous repairs to the truck.
Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $5,000 for the truck.
Year 2
Jan. 6. Purchased a new truck for $48,000, paying cash.
Apr. 1. Sold the used truck purchased on Jan. 4 of Year 1 for $15,000. (Record depreciation to date in Year 2 for the truck.)
June 11. Paid garage $450 for miscellaneous repairs to the truck.
Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $9,000 and an estimated life of five years.
Year 3
July 1. Purchased a new truck for $54,000, paying cash.
Oct. 2. Sold the truck purchased January 6, Year 2, for $16,750.
(Record depreciation to date for Year 3 for the truck.)
Dec. 31. Recorded depreciation on the remaining truck purchased on July 1.
It has an estimated residual value of $12,000 and an estimated useful life of eight years.
Instructions
Journalize the transactions and the adjusting entries.
Answer:
Year 1
Jan. 4 Delivery Truck28,000
Cash28,000
Nov. 2 Truck Repair Expense675
Cash675
Dec. 31 Depreciation Expense—Delivery Truck 14,000
Accum. Depreciation—Delivery Truck 14,000
Delivery truck depreciation
[$28,000 × (100% ÷ 4) × 2].
Year 2
Jan. 6 Delivery Truck48,000
Cash48,000
Apr. 1 Depreciation Expense—Delivery Truck 1,750
Accum. Depreciation—Delivery Truck 1,750
Delivery truck depreciation
[($28,000 – $14,000) ×
(100% ÷ 4) × 2 × (3 ÷ 12)].
1 Accum. Depreciation—Delivery Truck 15,750
Cash15,000
Delivery Truck28,000
Gain on Sale of Delivery Truck2,750
June 11 Truck Repair Expense450
Cash450
Dec. 31 Depreciation Expense—Delivery Truck 19,200
Accum. Depreciation—Delivery Truck 19,200
Delivery truck depreciation
[$48,000 × (100% ÷ 5) × 2].
1 Delivery Truck54,000
Cash54,000
2 Depreciation Expense—Delivery Truck 8,640
Accum. Depreciation—Delivery Truck 8,640
Delivery truck depreciation
[($48,000 – $19,200) ×
(100% ÷ 5) × 2 × (9 ÷ 12)].
2 Cash16,750
Accum. Depreciation—Delivery Truck 27,840
Loss on Sale of Delivery Truck 3,410
Delivery Truck48,000
31 Depreciation Expense—Delivery Truck 6,750
Accum. Depreciation—Delivery Truck 6,750
Delivery truck depreciation
[$54,000 × (100% ÷ 8) × 2 × (1 ÷ 2)].