All relevant data (I hope) July 1, 2010 - Purchase truck for $72,000 total Estim
ID: 2443523 • Letter: A
Question
All relevant data (I hope)
July 1, 2010 - Purchase truck for $72,000 total
Estimated life 120,000
Salvage - $0
2011 Expeditures: 1) Spent $4,500 on tires oil changes and other misc. items, 2) Spent $18,000 on January 1 to overhaul the engine and transmission, this extended the life of the truck by 85,000 miles.
Journalize
1) Purchase of the truck
Truck $72,000
cash 72,000
2) 2010 depreciation expense using units of production for the truck that was driven 35,000 miles
Depreciation expense $21,000
Accumulated depreciation 21,000
3) 2011 expeditures relating to the truck
Repairs expense $4,500
Cash $4,500
Truck $18,000
Cash $18,000
4) 2011 accumulated depreciation expense using units of production for the truck assuming it was driven 50,000 miles.
This is where I am stuck. I'm having a hard time figuring out how the extension in the life of the truck comes into play. What makes sense me would be to add the 85,000 miles to the existing 120,000 and have an equation that looks like this:
((72,000-0)/205,000)*50,000 = $17,561 (rounded to the nearest dollar), then add that to the 2010 accumulated depreciation of $21,000 to get $38,561. The problem is, that's not right.
What am I not taking into account and missing? How does that 85,000 mile increase to the truck's life affect the equation?
Explanation / Answer
I think you are not adding the cost of overhauling i.e. $18,000 to original cost of $72,000. But you have journalized correctly by debiting Truck account for $18,000.
Check if it works as follows :
Cost of Truck as on 01/xx/2010
($72,000 + $18,000) $90,000
Estimated Life (120,000 - 35,000 + 85,000) 170,000 miles
Accumulated Depreciation as on xx/xx/2011
======================================
Depreciation for 2010 $21,000
Depreciation for 2011
$90,000 x 50,000 / 170,000 $26,471
Total $47,471