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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Group and Composite Depreciation Chcadle Company purchased a fleet of 20 delivery trucks for $8,000 each on January 2, 2019. It decided to use composite depreciation on a straight-line basis and calculated the depreciation from the following schedule:

Chapter 11, Problem 5P, Group and Composite Depreciation Chcadle Company purchased a fleet of 20 delivery trucks for 8,000 , example  1

Cheadle actually retired the trucks according to the following schedule (assume each truck was retired at the beginning of the year):

Chapter 11, Problem 5P, Group and Composite Depreciation Chcadle Company purchased a fleet of 20 delivery trucks for 8,000 , example  2

Required:

  1. 1. Prepare the journal entries necessary to record the preceding events.
  2. 2. Assume that the company expected all the trucks to last 4 years and be retired for $1,600 each. Using group depreciation, prepare journal entries for all 6 years, assuming the company retired the trucks as shown by the latter schedule.

1.

To determine

Prepare the necessary journal entries to record the given transactions.

Explanation

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.

Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.

Prepare the necessary journal entries to record the given transactions as follows:

DateAccount Title & ExplanationDebit ($)Credit($)
January 2, 2019Trucks (1)160,000
    Cash 160,000
(To record the purchase of trucks for cash)
December 31, 2019Depreciation expense (2)30,400
     Accumulated depreciation-Trucks30,400
 (To record the depreciation expense incurred at the end of the accounting year)
January 1, 2020Cash4,000
 

Accumulated depreciation-Trucks

($8,000$4,000)

4,000
     Trucks ($8,000×1 truck)8,000
 (To record the retirement of trucks ( truck retired at 2020))
December 31, 2020Depreciation expense (4)28,880
     Accumulated depreciation-Trucks28,880
 (To record the depreciation expense incurred at the end of the accounting year)
January 1, 2021Cash11,000
 

Accumulated depreciation-Trucks

($24,000$11,000)

13,000
     Trucks ($8,000×3 trucks)24,000
 (To record the retirement of trucks (3 trucks retired at 2021))
December 31, 2021Depreciation expense (4)24,320
     Accumulated depreciation-Trucks24,320
 (To record the depreciation expense incurred at the end of the accounting year)
January 1, 2022Cash19,000
 

Accumulated depreciation-Trucks

($48,000$19,000)

29,000
     Trucks ($8,000×6 trucks)48,000
 (To record the retirement of trucks (6 trucks retired at 2022))
December 31, 2022Depreciation expense (4)15,200
     Accumulated depreciation-Trucks15,200
 (To record the depreciation expense incurred at the end of the accounting year)
January 1, 2023Cash6,000
 

Accumulated depreciation-Trucks

($40,000$6,000)

34,000
     Trucks ($8,000×5 trucks)40,000
 (To record the retirement of trucks (5 trucks retired at 2023))
December 31, 2023Depreciation expense (4)7,600
     Accumulated depreciation-Trucks7,600
 (To record the depreciation expense incurred at the end of the accounting year)
January 1, 2024Cash4,000
 

Accumulated depreciation-Trucks

($24,

2.

To determine

Prepare necessary journal entries for all 6 years, if trucks are retired at $1,600 each.

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