Question

Yoshi Company completed the following transactions and events involving its delivery trucks. Year 1 Jan. 1 Paid $25,015 cash plus $1,935 in sales tax for a new delivery truck estimated to have a five-year life and a $2,150 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 $2,550. 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 $5,500 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

1a

Compute depreciation for year 1:

Depreciation = Cost price - salvage value / useful life

Depreciation = 25015 + 1935 - 2150 / 5

Depreciation = 26950 - 2150 / 5

Depreciation = $4960

Depreciation for year 2:

Depreciation = Book value - revised salvage value / useful life remaining

Depreciation = (26950 - 4960) - 2550 / 3

Depreciation = 21990 - 2550 / 3

Depreciation = $6480

1b

Compute book value at year 3:

Accumulated depreciation at end of year 3 = 4960 + 6480 + 6480

Accumulated depreciation at end of year 3 = $17920

Book value at end of year 3 = 26950 - 17920

Book value at end of year 3 = $9030

Loss on sale of truck = book value - sale value

Loss on sale of truck = 9030 - 5500

Loss on sale of truck = $3530

1c

Journal entries:

Date	Particulars	Debit	Credit
Jan. 1 Year 1	Delivery truck (25015 + 1935)	26950
	Cash		26950
Dec. 31 year 1	Depreciation expense	4960
	Accumulated depreciation		4960
Dec. 31 Year 2	Depreciation expense	6480
	Accumulated depreciation		6480
Dec. 31 Year 3	Depreciation expense	6480
	Accumulated depreciation		6480
Dec. 31 Year 3	Cash	5500
	Accumulated depreciation	17920
	Loss on sale of delivery truck	3530
	Delivery truck		26950