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 is estimated to have a four- year life and a $29,000 salvage value. Loader costs are recorded in the Equipment account. Note: Enter debits before credits. General Journal | Debit Credit Date Jan 1, Year 1

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