Question

Yoshi Company completed the following transactions and events involving its delivery trucks. Year 1 Jan. 1 Paid $22,015 cash plus $1,635 in sales tax for a new delivery truck estimated to have a five-year life and a $2,300 salvage value. Delivery truck costs are recorded in the Trucks account. Dec. 31 Recorded annual straight-line depreciation on the truck. Year 2 Dec. 31 The truck's estimated useful life was changed from five to four years, and the estimated salvage value was increased to $2,850. Recorded annual straight-line depreciation on the truck. Year 3 Dec. 31 Recorded annual straight-line depreciation on the truck. Dec. 31 Sold the truck for $5,600 cash. Required: 1-a. Calculate depreciation for Year 2. 1-b. Calculate book value and gain (loss) for sale of Truck on December 31, Year 3. 1-c. Prepare journal entries to record these transactions and events.

Answer 1

Working Notes

Calculation of depreciation amount for 1 year

Particulars	Amount ($)
Purchase of Truck in cash	22,015
Sales Tax Paid	1,635
Total Purchase Cost	23,650
Less Salvage Value	2,300
Remaining cost to be depreciated	21350
Life of Truck	5 Years
Depreciation Per Annum	4,270

1- a. Calculation of depreciation for year 2

Particulars	Amount ($)
Total Cost	23,650
Less Accumulated Depreciation (from year 1)	4,270
Book Value	19,380
Less Revised Salvage Value	2,850
Remaining cost to be depreciated	16,530
Revised life	3 Years
Total Depreciation for year 2	5,510

1-b. Calculation of book value and gain (loss) for sale of truck on December 31, Year 3

Particulars	Amount ($)
Depreciation Expense (For Year 1)	4,270
Depreciation Expense (For Year 2)	5,510
Depreciation Expense (For Year 3)	5,510
Accumulated Depreciation 12/31/ Year 3	15,290
Book Value of Truck at 12/31/ Year 3 (23,650 - 152,90)	8,360
Total Cost	23,650
Accumulated Depreciation	15,290
Book Value 12/31/ Year 3	8,360
Sale value	5,600
Loss on sale of truck	2,760

1- c. Journal entries to record the above transactions and events are as follows.

Date	General Journal	Debit ($)	Credit ($)
Jan 01, Year 1	New Delivery Truck A/C	23,650
	Cash A/C		23,650
	(Being new delivery truck purchased on cash)
Dec 31, Year 1	Depreciation A/C	4,270
	New Delivery Truck A/C		4,270
	(Being Depreciation charged for Year 1)
Dec 31, Year 2	Depreciation A/C	5,510
	New Delivery Truck A/C		5,510
	(Being Depreciation charged for Year 2)
Dec 31, Year 3	Depreciation A/C	5,510
	New Delivery Truck A/C		5,510
	(Being Depreciation charged for Year 3)
Dec 31, Year 3	Cash A/C	5,600
	Loss on Sale of New delivery Truck	2,760
	New Delivery Truck A/C		8,360
	(Being truck sold on loss)