Question

Problem 10-5A Computing and revising depreciation; selling plant assets LO C2, P1, P2 Yoshi Company completed the following transactions and events involving its delivery trucks. Year 1 Jan. 1 Paid $20, 515 cash plus $1,485 in sales tax for a new delivery truck estimated to have a five-year life and a $2,000 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 $2,400. 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 $5,300 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

Cost of Truck = $20515 + $1485 = $22000
Depreciation = (Original Value - Salvage Value) / Useful Life
= ($22000 - $2000) / 5 = $4000 per year

1a.

Total Cost	$            22,000
Less accumulated depreciation (Year 1)	$               4,000
Book Value	$            18,000
Less revised salvage value	$               2,400
Remaining cost to be depreciated	$            15,600
Years of life remaining	$                       3
Total Depreciation for Year 2	$               5,200

1b.

Depreciation expense (Year 1)	$               4,000
Depreciation expense (Year 2)	$               5,200
Depreciation expense (Year 3)	$               5,200
Accumulated depreciation 12/31/Year 3	$            14,400
Book Value of Truck at 12/31/Year 3
Total Cost	$            22,000
Accumulated depreciation	$            14,400
Book Value of Truck at 12/31/Year 3	$               7,600
Loss on sale of Truck	$               2,300

Since Book Value is greater than sale proceeds, therefore it is a loss
Loss on Sale of Truck = Book Value - Sale Proceeds
= $7600 - $5300 = $2300

1c.

(i)

Date	Account Titles	Debit	Credit
Jan 1, Year 1	Truck	$            22,000
	Cash		$                  22,000
	(New Truck Purchased)

(ii)

Date	Account Titles	Debit	Credit
Dec 31, Year 1	Depreciation Expense	$               4,000
	Accumulated Depreciation		$                     4,000
	(Depreciation expense for the period)

(iii)

Date	Account Titles	Debit	Credit
Dec 31, Year 2	Depreciation Expense	$               5,200
	Accumulated Depreciation		$                     5,200
	(Depreciation expense for the period)

(iv)

Date	Account Titles	Debit	Credit
Dec 31, Year 3	Depreciation Expense	$               5,200
	Accumulated Depreciation		$                     5,200
	(Depreciation expense for the period)

(v)

Date	Account Titles	Debit	Credit
Dec 31, Year 3	Cash	$               5,300
	Accumulated Depreciation	$            14,400
	Loss on Sale of Truck	$               2,300
	Truck		$                  22,000
	(Sale of Truck)