Tony and Suzie see the need for a rugged all-terrain vehicle to transport partic
ID: 2417982 • Letter: T
Question
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They would love to buy a Hummer, but it is just too expensive and too small for their needs, so they settle on a used Suburban. The cost of the Suburban is $13,700. The vehicle is purchased in late June and will be put into use on July 1, 2013. Annual insurance from GEICO runs $1,900 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 hood, back, and both sides. An additional $3,000 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 $4,900.
1. Determine the amount that should be recorded for the new vehicle.
2. Prepare a depreciation schedule using the straight-line method.
3. Record the sale of the vehicle two years later on July 1, 2015, for $9,600
Explanation / Answer
1 Cost of the vehicle 13700 Add: Repainting 3000 Add: Additional maintenace 3000 Total cost of the vehicle to be recorded 19700 2 Cost of the Vehicle 19700 Less: Salvage value 4900 Cost of the vehicle available for depreciation 14800 Life of vehicle 5 Depreciation under strigt line method 2960 per year 3 Cost of the vehicle 19700 Less: 2 years depreciation 5920 Written down value of the vehicle 13780 Sale value 9600 Loss on sale of assets (13780-9600) 4180 Entry Debit Cash 9600 Debit loss on sale of assets 4180 Credit Vehicle 13780