Read the following case and record the transactions and the corresponding adjustment entries: At Caribe Music, a company dedicated to the sale of music equipment, there have been the following transactions and adjustments in the past two years. The transactions are related to the use of the shipping equipment. The depreciation method was the double declining balance. First year Transacción February 6 A used delivery truck was purchased in cash for $35,000. July 7 $700 was paid in truck repairs. December 31 Records the depreciation of the truck for the calendar year. The truck had a lifespan of 3 years. The truck had a residual of $4,500. Second year January 8 A new truck was purchased in cash for $52,000. June 10 Maintenance and repairs were performed on the truck for $625. July 9 $300 was paid for repairs to the used truck that was purchased the first year. September 19 The truck that was purchased in the first year was sold for $20,000. Records depreciation at the date of sale of the truck. December 31 Records the depreciation of the truck purchased in the second year. The truck has a service life of 5 years. The truck has a residual of $7,200.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
- Read the following case and record the transactions and the corresponding
adjustment entries:
At Caribe Music, a company dedicated to the sale of music equipment, there have been the following transactions and adjustments in the past two years. The transactions are related to the use of the shipping equipment. The
|
First year |
Transacción |
|
February 6 |
A used delivery truck was purchased in cash for $35,000. |
|
July 7 |
$700 was paid in truck repairs. |
|
December 31 |
Records the depreciation of the truck for the calendar year. The truck had a lifespan of 3 years. The truck had a residual of $4,500. |
|
Second year |
|
|
January 8 |
A new truck was purchased in cash for $52,000. |
|
June 10 |
Maintenance and repairs were performed on the truck for $625. |
|
July 9 |
$300 was paid for repairs to the used truck that was purchased the first year. |
|
September 19 |
The truck that was purchased in the first year was sold for $20,000. Records depreciation at the date of sale of the truck. |
|
December 31 |
Records the depreciation of the truck purchased in the second year. The truck has a service life of 5 years. The truck has a residual of $7,200. |
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