Tony and Suzie purchase a Suburban for $12,000. The vehicle is purchased in late
ID: 2379251 • Letter: T
Question
Tony and Suzie purchase a Suburban for $12,000. The vehicle is purchased in late June, and will be put into use on July 1, 2013. Annual insurance from GEICO runs $1800 per year. The paint is starting to fade, so they spend an extra $3,000 to repaint the vehicle, placing the Great Adventures logo on the front hoood, back, and both sides. An additional $2,000 is spent on a deluxe roof rack and a trailer hitch. They expect to use the Suburban for five years and then sell the vehicle for 4500.
1. Determine the amount that should be recorded for the new vehicle.
2. Indicate where any amounts not included in the Equipment account should be recorded.
3. Prepare a depreciation schedule using the straight line. The first and last years will have a half year of depreciation due to the beginning of service life on July 1.
4. Record the sale of the vehicle two years later on July 1, 2015, for $10,000.
Explanation / Answer
1 Cost of Truck willinclude Painting & Rack etc which has life longer than one year.
So Cot of Truck in books will be COst + Paiting + Roof Rack = 12000+3000+2000 = 17000
2 Insurance charges of $1800 per yer should not be recorded in equipment
3 Depreciation Schedule using SLN method.
Depreciation per year = (Cost-Salvage)/life = (17000-4500)/5 = 12500/5 = 2500
SO Dep in Y1 for 6 month (1Jul-31Dec 2013) = 2500/2 = 1250
Dep from Y2-Y5 will be 2500 per year
Dep in Y6 will be from 1Jan-30 Jun ie 6 month = 1250
4 Sale on 1 Jul 2015. So Dep is for 6month in 2013+2014+ 6month in 2015
= 1250+2500+1250 = 5000
So Book value on 1 Jul 2015 = Cost - Accum Dep = 17000-5000 = 12000
Vehicle is sold for 10000, SO there is loss of 2000
1Jul2015 Cash Dr 10000
Accum Dep Dr 5000
Loss on Sale Dr 2000
Vehicle Accout Cr 17000