Question

Jijang Excavations Ltd. (JEL) operates specialized equipment for installing natural gas pipelines. JEL, which has a December 31 year end, began 2020 with a single piece of equipment that had been purchased on January 1, 2017, for $45,000 and a truck that had been purchased on January 1, 2019, for $70,000. When the equipment was purchased, JEL’s management had estimated that the equipment would have a residual value of $3,000 and a useful life of six years. When the truck was purchased, management determined that it would have a useful life of four years and a residual value of $3,000.

On March 31, 2020, JEL sold this piece of equipment for $27,250 cash. On April 1, 2020, JEL purchased replacement equipment with double the capacity for $71,200 cash. JEL’s management determined that this equipment would have a useful life of six years and a residual value of $10,000.

Prepare all necessary journal entries for the year ended December 31, 2020. Assume that JEL uses the straight-line depreciation method for its equipment and the double-diminishing-balance method for its trucks.

Record journal entries for: depreciation, expense, sale of equipment, depreciation expense on equipment and depreciation expense on truck

Answer 1

workings

1. Calculation of rate of depreciation of trucks under double - demênishing - balance method: Cost of truck, = $ 70,000 (on January 1, 2019) Useful life a 4 years Residual value = $3000. straight line depreciation reate = 1 & 100 a 25% Double-demenishing - balance rate a 2x25% 2 50% 4 years

2. Calcolation of depreciation expenses of truck; $ 70 000 ($35 000) Less: Cost of truck on January 1, 2019 Depreciation expenses for the year 2019 ( $70,000 X 50%) of truck on January 1, 2020 Depreciation expenses for the year 2020 C $35.000 X50%) value of truck on Decomber 31, 2020 $ 35,000 Less: $17.500g $17.500

3. Calculation of depreciation and value of a equipment (purchased on January 1, 2017 at the tome of sales: Cost of Ercupment on January 1, 2017 $ 45000 Useful life = 6 years, Residual value = $3,000 . Deprecial expenses of each year $45.000 – $3000 6 years 2 $ 7000 Cost of Ercipment on January 1, 2017 $45000 Less! Depreciation expenses for the year 2017 2018 ($21.000) and 2019 C$ 7500 x 3) value of kruipment on January 1, 2020 229,000 Lessi Depreciation upto March 31, 2020 ($ 1750) C$ 7000 x 3,2) value of equipment on the date of $ 22, 250 sale

4. or loss made on sales Calculation of preapet of ecruipment: value of eawpment sales pruce Profet on on the date of Sale $22, 250 $27,250 sales of equipment $5,000 5. Calculation of deprecêation on excepment (purchased on April 1, 2020); cost of ecraopment & $71,200 useful life = 6 years Rasedual value = $10,000 Depreciation of each year (12 months) $71,200 – $10,000 G years $ 10, 200 so Depreciation for the year 2020 - $ 10.200 g $7,650
Journal Entries

The last entry shows the transfer of depreciation expenses account balance to statement of profit and loss. If it is not required then please ignore it.

Debet $ 1750 $1750 $27,250 $22,750 $45.000 $5,000 $71.250 $71200 Journal Enterias Date. Account Name and Description 31-03-2020 Depxcrat Eon Expenses of fevropment Accumulated Depreciation To record de preociation on equipment at the time or Saules 31-03-2020 Cash Accumulated Depreciation Ecruipment statement of Profit and Loss To record the sales of ecruipment, 01-04-2020 Equipment Cash To record purchas off new carcipment. Deprecation Expenses of Truck Depreciation Expenses of Ecripment Accumulated. Depreciation To record deprefation expenses of track and new coruipment. 131-12-2020 Statement of profet and Loss Depreciation Expenses of Foguipment Depreciation Expenses of Truck Depreciation Expenses of Fruepment To record the transfer of the balance of deprocłation expenses account to statement of profit and loss. $17,500 $7650 $25 150 $26.900 $ 1750 $ 17500 $ 7656