Journalize the transactions and
Explanation of Solution
Disposal of Assets: Disposal is an activity of selling the worn-out assets that is no longer in need for the business, in return of some consideration. Disposal may be made in any of the following situations:
- Disposal with no gain no loss: When the asset is disposed with no consideration received.
- Disposal with gain: When the asset is disposed for more than its book value (original cost less
accumulated depreciation ). - Disposal with loss: When the asset is disposed for less than its book value.
Double-declining-balance method: It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less accumulated depreciation) of the long-term asset is decreased by a fixed rate. It is double the rate of the straight-line depreciation. Use the following formula to determine the annual depreciation:
Journalize the transactions and adjusting entries for Year 1.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
Year 1 | ||||
January 8 | Delivery Truck | 24,000 | ||
Cash | 24,000 | |||
(To record the purchase of an used delivery truck.) | ||||
March 7 | Truck Repair Expense | 900 | ||
Cash | 900 | |||
(To record the truck repair expense incurred.) | ||||
December 31 | Depreciation Expense-Delivery Truck | 12,000 (1) | ||
Accumulated depreciation-Delivery Truck | 12,000 | |||
(To record the depreciation expense for the used delivery truck.) |
Working note 1: Determine the amount of depreciation expense of the used delivery truck for the year1.
Cost of the used delivery truck= $24,000
Estimated Useful Life =4 years
Year 1
January 8: Record the purchase of an used delivery truck.
- Delivery Truck is an asset, and it is increased by $24,000. Therefore, debit Delivery Truck account by $24,000.
- Cash is an asset, and it is decreased by $24,000. Therefore, credit cash with $24,000.
March 7: Record the miscellaneous repairs expense incurred for delivery truck.
- Truck Repairs Expense is an expense and a component of
stockholders’ equity. It is increased by $900 which reduces the stockholders’ equity. Therefore, debit Truck Repairs Expense account by $900. - Cash is an asset, and it is decreased by $900. Therefore, credit cash with $900.
December 31: Record an adjusting entry for depreciation expense.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $12,000 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $12,000.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $12,000. Therefore, credit Accumulated depreciation – Delivery Truck by $12,000.
Journalize the transactions and adjusting entries for Year 2.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
Year 2 | ||||
January 9 | Delivery Truck | 50,000 | ||
Cash | 50,000 | |||
(To record the purchase of delivery truck.) | ||||
February 28 | Truck Repair Expense | 250 | ||
Cash | 250 | |||
(To record the truck repair expense incurred.) | ||||
April 30 | Depreciation Expense-Delivery Truck | 2,000 (2) | ||
Accumulated depreciation-Delivery Truck | 2,000 | |||
(To record the depreciation expense for the used delivery truck.) | ||||
April 30 | Cash | 9,500 | ||
Accumulated depreciation-Delivery Truck | 14,000 | |||
Loss on sale of Delivery Truck | 500(3) | |||
Delivery Truck | 24,000 | |||
(To record the sale of the used delivery truck.) | ||||
December 31 | Depreciation Expense-Delivery Truck | 12,500 (4) | ||
Accumulated depreciation-Delivery Truck | 12,500 | |||
(To record the depreciation expense for the new truck.) |
Table (2)
Working note 2: Calculate the Depreciation expense for the used delivery truck sold.
Cost of the used delivery truck =$24,000
Accumulated Depreciation =$12,000 (1)
Estimated Useful Life =4 years
Number of months used in Year 2 = 4months (January 1-April 30)
Working note 3: Calculate the gain or (loss) on the sale of the used delivery truck.
Cash received on sale =$9,500
Cost of the used delivery truck =$24,000
Accumulated Depreciation =
Working note 4: Determine the amount of depreciation expense of the new delivery truck for the year2.
Cost of the new delivery truck= $50,000
Estimated Useful Life =8 years
Year 2
January 9: Record the purchase of a new delivery truck.
- Delivery Truck is an asset, and it is increased by $50,000. Therefore, debit Delivery Truck account by $50,000.
- Cash is an asset, and it is decreased by $50,000. Therefore, credit cash with $50,000.
February 28: Record the miscellaneous repairs expense incurred for delivery truck.
- Truck Repairs Expense is an expense and a component of stockholders’ equity. It is increased by $250 which reduces the stockholders’ equity. Therefore, debit Truck Repairs Expense account by $250.
- Cash is an asset, and it is decreased by $250. Therefore, credit cash with $250.
April 30: Record the depreciation expense for the used delivery truck.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $2,000 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $2,000.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $2,000. Therefore, credit Accumulated depreciation – Delivery Truck by $2,000.
April 30: Record the sale of the used delivery truck.
- Cash is an asset, and it is increased by $9,500. Therefore, debit cash with $9,500.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The decrease in accumulated depreciation increases the asset by $14,000. Therefore, debit Accumulated depreciation – Delivery Truck by $14,000.
- Loss on Sale of Delivery Truck is a loss for the company, and it decreases the stockholder’s equity by $500. Therefore, debit Loss on Sale of Delivery Truck by $500.
- Delivery Truck is an asset, and it is decreased by $24,000. Therefore, credit Delivery Truck account by $24,000.
December 31: Record an adjusting entry for depreciation expense.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $12,500 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $12,500.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $12,500. Therefore, credit Accumulated depreciation – Delivery Truck by $12,500.
Journalize the transactions and adjusting entries for Year 3.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
Year 3 | ||||
September 1 | Delivery Truck | 58,500 | ||
Cash | 58,500 | |||
(To record the purchase of delivery truck.) | ||||
September 4 | Depreciation Expense-Delivery Truck | 6,250 (5) | ||
Accumulated depreciation-Delivery Truck | 6,250 | |||
(To record the depreciation expense for the delivery truck purchased in Year 2.) | ||||
September 4 | Cash | 36,000 | ||
Accumulated depreciation-Delivery Truck | 18,750 | |||
Gain on sale of Delivery Truck | 4,750 (6) | |||
Delivery Truck | 50,000 | |||
(To record the sale of the delivery truck purchased on Year 2.) | ||||
December 31 | Depreciation Expense-Delivery Truck | 3,900 (7) | ||
Accumulated depreciation-Delivery Truck | 3,900 | |||
(To record the depreciation expense for the new truck of Year 3.) |
Table (3)
Working note 5:
Calculate the Depreciation expense for the delivery truck of Year 2 sold.
Cost of the delivery truck purchased in Year 2 =$50,000
Accumulated Depreciation =
Estimated Useful Life =8 years
Number of months used in Year 3 = 8 months (January 1-August 31)
Working note 6: Calculate the gain or (loss) on the sale of the delivery truck of Year 2.
Cash received on sale =$36,000
Cost of the delivery truck of Year 2 =$50,000
Accumulated Depreciation =
Working note 7: Determine the amount of depreciation expense of the new delivery truck for the year3.
Cost of the new delivery truck= $58,500
Estimated Useful Life =10 years
Number of months used = 4 months (September 1-December 31)
Year 3
September 1: Record the purchase of a new delivery truck.
- Delivery Truck is an asset, and it is increased by $58,500. Therefore, debit Delivery Truck account by $58,500.
- Cash is an asset, and it is decreased by $58,500. Therefore, credit cash with $58,500.
September 4: Record the depreciation expense for the delivery truck of Year 2.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $6,250 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $6,250.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $6,250. Therefore, credit Accumulated depreciation – Delivery Truck by $6,250.
September 4: Record the sale of the delivery truck of Year 2.
- Cash is an asset, and it is increased by $36,000. Therefore, debit cash with $36,000.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The decrease in accumulated depreciation increases the asset by $18,750. Therefore, debit Accumulated depreciation – Delivery Truck by $18,750.
- Gain on Sale of Delivery Truck is a gain for the company, and it decreases the stockholder’s equity by $4,750. Therefore, credit Gain on Sale of Delivery Truck by $4,750.
- Delivery Truck is an asset, and it is decreased by $58,500. Therefore, credit Delivery Truck account by $58,500.
December 31: Record an adjusting entry for depreciation expense for the new delivery tuck of Year 3.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $3,900 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $3,900.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $3,900. Therefore, credit Accumulated depreciation – Delivery Truck by $3,900.
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Chapter 10 Solutions
Financial Accounting
- Soon after December 31, 2019, the auditor requested a depreciation schedule for trucks of Jarrett Trucking Company, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2016 to 2019, inclusive. The following data were in the Trucks account as of January 1, 2016: The Accumulated DepreciationTrucks account, previously adjusted to January 1,2016, and duly entered in the ledger, had a balance on that date of 16,460. This amount represented the straight-line depreciation on the four trucks from the respective dates of purchase, based on a 5-year life and no residual value. No debits had been made to this account prior to January 1, 2016. Transactions between January 1,2017, and December 31, 2019, and their record in the ledger were as follows: 1. July 1, 2016: Truck no. 1 was sold for 1,000 cash. The entry was a debit to Cash and a credit to Trucks, 1,000. 2. January 1, 2017: Truck no. 3 was traded for a larger one (no. 5) with a 5-year life. The agreed purchase price was 12,000. Jarrett paid the other company 1,780 cash on the transaction. The entry was a debit to Trucks, 1,780, and a credit to Cash, 1,780. 3. July 1, 2018: Truck no. 4 was damaged in a wreck to such an extent that it was sold as junk for 50 cash. Jarrett received 950 from the insurance company. The entry made by the bookkeeper was a debit to Cash, 1,000, and credits to Miscellaneous Revenue, 50, and Trucks, 950, 4. July 1, 2018: A new truck (no. 6) was acquired for 20,000 cash and debited at that amount to the Trucks account. The truck has a 5-year life. Entries for depreciation had been made at the close of each year as follows: 2016, 8,840; 2017, 5,436; 2018, 4,896; 2019, 4,356. Required: 1. Next Level For each of the 4 years, calculate separately the increase or decrease in earnings arising from the companys errors in determining or entering depreciation or in recording transactions affecting trucks. 2. Prove your work by one compound journal entry as of December 31, 2019; the adjustment of the Trucks account is to reflect the correct balances, assuming that the books have not been closed for 2019.arrow_forwardUsing the following information, A. Make the December 31 adjusting journal entry for depreciation. B. Determine the net book value (NBV) of the asset on December 31. Cost of asset, $195,000 Accumulated depreciation, beginning of year, $26,000 Current year depreciation, $13,000arrow_forwardThe 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. Journalize entries for each year. Year 1 Jan. 4 Purchased a used delivery truck for $29,200, paying cash. Nov. 2 Paid garage $650 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 $4,505 for the truck. Year 2 Jan. 6 Purchased a new truck for $49,900, paying cash. Apr. 1 Sold the used truck purchased on Jan. 4 of Year 1 for $15,710. (Record depreciation to date in Year 2 for the truck.) June 11 Paid garage $495 for miscellaneous repairs to the truck. Dec. 31 Recorded depreciation for the new truck. It has an estimated residual value of $8,790 and an estimated life of five years. Year 3 July 1 Purchased a new…arrow_forward
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