Question

Jessica Grewal decided to open a food truck business, the Samosa Shack. She encountered the folowing transactions in managing her equipment over the frst 2 years of her business April 1, 2015 Purchased food truck for $60,000 and paid $6,000 to have a commercial oven nstalled Other costs that she incurred are $6,000 for insurance the frst year, and $3,000 to have the truck panted with her Samosa Shack logo Jessica estimates that the truck would last 5 years and have a $12,000 residual value The oven is aso expected to last 5 years and have a $1,200 residual value on the truck for October 1, 2015 The oven broke down and cost $1,800 to repar December 31, 2015Recorded the adjusting entry for depreciation and insurance April 1,2010 Replaced all of the bres with all- season tres for $1,800 and paid another year of nsrance for 6,000 December 31, 2016 Recorded the adusing eetry for depreciation, and insurance Jessica was exhausted ftrom the food truck buğness and decided to go back to school and sell the food truck to her friend Mark He pasd her $27,000 for the truck and oven, which included $1.200 for the oven component March 31, 2017 Note: The company calculates depreciation using the straight-äne method to the nearest month Required: Record all the entries for the 2 years that Jessica owned the truck, Including the disposal of the truck and oven, (Ot no entry is required for a transactionlevent, select

Answer 1

Solution:

Journal Entries:

Date	General Journal	Debit	Credit
Apr. 1	Truck	$        63,000
	Commercial Oven	$          6,000
	Prepaid Insurance	$          6,000
	Cash		$        75,000
	(Being truck, oven and prepaid insurance taken)
Oct. 1	Repairs Expense	$          1,800
	Cash		$          8,000
	(Being repairs made)
Dec. 31	Depreciation Expense-Truck((63000-12000)/5*9/12)	$          7,650
	Accumulated Depreciation-Truck		$          7,650
	(Being depreciation expense recorded)
Dec. 31	Depreciation Expense-Oven((6000-1200)/5*9/12)	$              720
	Accumulated Depreciation-Oven		$              720
	(Being depreciation expense recorded)
Dec. 31	Insurance Expense	$          4,500
	Prepaid Insurance		$          4,500
	(Being insurance expense)
2016
Apr. 1	Prepaid Insurance	$          6,000
	Repairs Expense	$          1,800
	Cash		$          7,800
	( Being repairs and insurance paid)
Dec. 31	Depreciation Expense-Truck ((63000-12000)/5)	$        10,200
	Accumulated Depreciation-Truck		$        10,200
	(Being depreciation expense recorded)
Dec. 31	Depreciation Expense-Oven ((6000-1200)/5)	$              960
	Accumulated Depreciation-Oven		$              960
	(Being depreciation expense recorded)
Dec. 31	Insurance Expense	$          4,500
	Prepaid Insurance		$          4,500
	(Being insurance expense)
2017
Mar. 31	Cash ( 27,000 - 1,200 )	$        25,800
	Accumulated Depreciation-Truck ( 10,200 + 7,650)	$        17,850
	Loss on sale of machine (balancing figure)	$        19,350
	Truck		$        63,000
	( Being machine sold)
Mar. 31	Cash	$          1,200
	Accumulated Depreciation-Oven ( 960 + 720)	$          1,680
	Loss on sale of Oven (balancing figure)	$          3,120
	Commercial Oven		$          6,000
	( Being machine sold)

Notes:

1) First year depreciation is calculated for 9 months.

2) Logo cost is includes in truck cost.

3) Selling value of $27,000 includes oven component value of $1,200.