Clarion Contractors completed the following transactions and events involving th
ID: 2385190 • Letter: C
Question
Clarion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.2010
Jan. 1 Paid $318,000 cash plus $12,720 in sales tax and $1,900 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $31,800 salvage value. Loader costs are recorded in the Equipment account.
Jan. 3 Paid $7,000 to enclose the cab and install air conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $2,100.
Dec. 31 Recorded annual straight-line depreciation on the loader.
2011
Jan. 1 Paid $4,800 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb. 17 Paid $1,200 to repair 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.
Explanation / Answer
We can calculate Dep in two steps ;- 1. Calculate Dep for 2 days on Loader Initial Cost of 273140 & Salvage 34740 2. Calculate Dep for 363 days for Loader Final cost & revised salvage 1.SLN Dep = (Cost-Salvage)/Life = (273140-34740)/4 = $59600 pa For 2 Days (Jan 1-2), Dep = (2/365)*Annual Dep = (2/365)*59600 = $327 ....(a) 2. New SLN Dep on Jan 3 = [(273140+3660)-(34740+111)]/4 = $60238 pa For 363 Days (Jan 3 onwards), Dep = (363/365)*Annual Dep = (363/365)*60238 = $59,907 .....(b) SO Annual Dep for Y1 = a+b = $60,234