Question

Champion Contractors completed the following transactions involving equipment.

Year 1

Jan. 1 Paid $290,000 cash plus $11,600 in sales tax and $1,700 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $29,000 salvage value. Loader costs are recorded in the Equipment account.
Jan. 3 Paid $6,000 to install air conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,800.
Dec. 31 Recorded annual straight-line depreciation on the loader.


Year 2

Jan. 1 Paid $4,300 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb. 17 Paid $1,075 for minor repairs to the loader after the operator backed it into a tree.
Dec. 31 Recorded annual straight-line depreciation on the loader.


Required:

Prepare journal entries to record these transactions and events.

answer in these formats please

Paid $290,000 cash plus $11,600 in sales tax and $1,700 in transportation (FOB shipping point) for a new loader. The loader i

Paid $6,000 to install air conditioning in the loader to enable operations under harsher conditions. This increased the estim

.........! Recorded annual straight-line depreciation on the loader. Note: Enter debits before credits. Date General Journal

Paid $4,300 to overhaul the loaders engine, which increased the loaders estimated useful life by two years. Note: Enter deb

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Answer #1

Date

General Journal

Debit

Credit

Jan 1, Year 1

Equipment

$303,300

   Cash

$303,300

(Paid $290,000 cash plus $11,600 in sales tax and $1,700 in transportation for a new loader)

Note: Loader Costs recorded = $290,000 + $11,600 + $1,700 = $303,300

Date

General Journal

Debit

Credit

Jan 3, Year 1

Equipment

$3,000

   Cash

$3,000

(Paid $6,000 to install air conditioning in the loader to enable operations under harsher conditions)

Date

General Journal

Debit

Credit

Dec 31, Year 1

Depreciation Expense- Equipment

$68,875

   Accumulated Depreciation- Equipment

$68,875

(Recorded annual straight line depreciation on the loader)

Note: Revised Cost of the Loader = Original Cost of the Loader + Installation Cost of Air Conditioning

= $303,300 + $3,000 = $306,300

Annual Depreciation of the Loader = (Revised Cost of the Equipment – Salvage Value)/Estimated Life

= $306,300 – $(29,000 + $1,800)]/ 4 years = $68,875

Date

General Journal

Debit

Credit

Jan 1, Year 2

Equipment

$4,300

   Cash

$4,300

(Paid $4,300 to overhaul the loader’s engine)

Date

General Journal

Debit

Credit

Feb 17, Year 2

Repairs Expenses – Equipment

$1,075

   Cash

$1,075

(Paid for minor repairs to the loader after the operator backed it into a tree)

Date

General Journal

Debit

Credit

Dec 31, Year 2

Depreciation Expenses – Equipment

$42,185

   Accumulated Depreciation – Equipment

$42,185

(Recorded annual straight line depreciation on the loader)

Note: Book Value of the Loader as on Jan 1

= Revised Cost (Year1) + Overhaul Expenses – Accumulated Depreciation

= $306,300 + $4,300 - $68,875 = $241,725

Cost to be Depreciated in Year 2 = Book Value – Salvage Value = $241,725 – $(29,000 + 1,800) = $210,925

Remaining Useful Life (Revised) = Original Useful Life left after Year 1 + Increased Useful Life

= (4-1) + 2 = 5years

Therefore, Annual Depreciation of the Loader

= Cost to be depreciated in Year 2 / Remaining Useful Life (Revised)

= $210,925 / 5 years = $42,185

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