Question

Champion Contractors completed the following transactions involving equipment. Year 1 Jan. 1 Paid $298,000 cash plus $11,920 in sales tax and $1,600 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $29,800 salvage value. Loader costs are recorded in the Equipment account. Jan. 3 Paid $4,000 to install air conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,200. 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 1

Credit $3,11,520.00 Date Particulars Debit Jan 1, Year Equipment Alc $ 2,99,600.00 Sales tax A/C $ 11,920.00 To Cash (Being cash paid for purchase of equipment. Transportation cost is capitalised along with equipment as it is required to bring the asset to usable condition. However sales tax is recorded separetely as input can be claimed on the same) $ 4,000.00 Jan 3, Year Equipment A/c To Cash $ 4,000.00 (Being air conditioning cost capitalized to equipment account as it increases salavage value)

A A A Straightline Method (SL) Asset (A) Loader Purchase price (298,000 + 1600) = (B) $ 2,99,600.00 Addition of aircondition (C) 4,000.00 Initial salvage value 29,800.00 Salvage value after airconditioning (D) 31,000.00 Depreciable Value (E) = (B) + (C)-(D 2,72,600.00 Useful Life (U) Depreciation = (E + U) Asset value after depreciation 1 $ 68,150.00 $ 2,04,450.00 A A Year

Credit Debit $ 68,150.00 Date Particulars Dec 31, Year 1 Depreciation Alc To Equipment Alc (Depreciation expense charged) $ 68,150.00 Jan 1, Year 2 $ 4,300.00 $ 4,300.00 Equipment Alc To Cash (Being overhaul expense capitalized as it increases useful life) $ 1,075.00 Feb 17, Year 2 Repairs Alc To Cash $ 1,075.00 (Being repairs expensed as it does not increase salvage value or useful life of asset)

A Straightline Method (SL) Asset (A) Loader Balance amount after Year 1 depreciation (B) $ 2,04,450.00 Overhaul expense (C) 4,300.00 Depreciable Value (D) = (B) + (C) 2,08,750.00 Useful Life before overhaul 3 Useful Life after overhaul (U) 5 Depreciation = (D-U) Asset value after depreciation 41,750.00 $ 1,67,000.00 A Year 2 $

$ 41,750.00 Dec 31, Year 2 Depreciation Alc To Equipment A/C (Depreciation expense charged) $ 41,750.00