Tony and Suzie see the need for a rugged all-terrain vehicle to transport partic
ID: 2461319 • Letter: T
Question
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $9,200. The vehicle is purchased in late June and will be put into use on July 1, 2016. Annual insurance from GEICO runs $1,450 per year. The paint is starting to fade, so they spend an extra $2,300 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $1,300 is spent on a deluxe roof rack and a trailer hitch. The painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures. They expect to use the Suburban for five years and then sell the vehicle for $3,800.
1) Determine the amount to be recorded for the new vehicle. (I got 12,800, which is correct, by adding 9,200+2,300+1,300)
2) Prepare a depreciation schedule using the straight-line method
3) Record the sale of the vehicle two years later on July 1, 2018, for $7,900.
Explanation / Answer
Answer
Answer 2)
Prepare a depreciation schedule using the straight-line method
Calculation of depreciation using straight line method
Figures in $
Particulars
Amount
Total Cost of Suburban
a
12800
(9200+2300+1300)
Salvage value
b
3800
Expected useful life
c
5
Depreciation per annum (a-b)/c
1800
Depreciation Schedule
Figures in $
Year
Depreciation
From Jul-16 to December 2016
900
2017
1800
2018
1800
2019
1800
2020
1800
Up to July-2021
900
Total Depreciation
9000
Answer 3
Record the sale of the vehicle two years later on July 1, 2018, for $7,900.
Written down value as on July 1, 2018 = $ 12800 – ( $ 1800 * 2)
= $ 12800 – $ 3600
= $ 9200
Loss on sale of vehicle = Written down value – Sales price
= $ 9200 - $7,900
Loss on sale of vehicle = $ 1300
Cash A/c Dr. $7,900
Loss on sales of vehicle A/c Dr. $ 1300
To Vehicle A/c Cr. $ 9200
Calculation of depreciation using straight line method
Figures in $
Particulars
Amount
Total Cost of Suburban
a
12800
(9200+2300+1300)
Salvage value
b
3800
Expected useful life
c
5
Depreciation per annum (a-b)/c
1800