Question

On January 1, 2016, Tremblay Transport purchased a $160,000 truck

Tremblay plans on driving the truck for 400,000 kilometers.

Expected residual value for the truck is $40,000.

On June 30, 2019, after having been driven 180 000 kilometers, the truck had an accident on the highway and Tremblay had to sell it for $42,000 cash.

REQUIRED :

Record the disposal of the truck on June 30, 2019, assuming the amortization expense for the truck to decembre 31, 2018 has already been recorded using the unit-of-production method and that the truck has been driven 20 000 km since then.

Answer 1

Answer:

Date Account Titles and Explanation Jun 30, 19 Depreciation Expense To Accumulated depreciation (Being Depreciation applied till date) Debit($) Credit($) 6,000 6,000 54,000 54,000 Jun 30, 19 Accumulated depreciation To Truck (Being Accumulated depreciation transferred to asset a/c) 42,000 64,000 Jun 30, 19 Cash Loss on sale of asset To Truck (Being asset disposed after accident) 106,000

Explanation:

Depreciation Expense(Current year till date of disposal)=(Original Cost-Salvage Value)*Kms Driven/Total Life in Kms=(160,000-40,000)*20,000/400,000=6,000

Total accumulated depreciation till date=(Original Cost-Salvage Value)*Kms Driven/Total Life in Kms=(160,000-40,000)*180,000/400,000=54,000

Loss on sale=(Original Cost-accumulated depreciation)-Sales price=(160,000-54,000)-42,000=64,000

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