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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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Borrell Company purchased four delivery trucks on January 2, 2019, for $22,000 each. Borrell expected two of the trucks to last 5 years and have a residual value of $3,500 each. The other two trucks had an expected life of 8 years and no residual value. Borrell uses straight-line depreciation on a composite basis.

Required:

Prepare journal entries to record the following events:

  1. 1. January 1, 2021. One of the two trucks expected to last 5 years is destroyed in an accident. The truck was not insured and the scrap value is $400.
  2. 2. January 5, 2021. A new truck is acquired for $26,000. It has an expected life of 4 years and a residual value of $3,920.
  3. 3. Depreciation expense for 2021.

1.

To determine

Prepare journal entries for the given transaction on January 1, 2021.

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 journal entries for the truck disposed on January 1, 2021:

DateAccount Title & ExplanationDebit ($)Credit($)
January 1, 2021Cash400
 Accumulated depreciation-Trucks (1)21,600
     Trucks 22,000
 (To record the disposal of truck)

Table (1)

  • Cash is an asset and it is increased by $400...

2.

To determine

Prepare journal entry for the purchase of truck.

3.

To determine

Prepare journal entries for the depreciation expense of Company B for the year 2021.

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