Tony and Suzie see the need for a rugged all-terrain vehicle to transport partic
ID: 2556743 • 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 $10,000. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,550 per year. The paint is starting to fade, so they spend an extra $2,500 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $1,500 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 $4,000.
1. Determine the amount that should be recorded for the new vehicle.
3. Prepare a depreciation schedule using the straight-line method.
4. Record the sale of the vehicle two years later on July 1, 2021, for $8,500
Explanation / Answer
1. Determine the amount that should be recorded for the new vehicle
Purchase price $10,000
Painting and new logo $ 2500
Deluxe roof rack and trailer hitch $ 1500
Total $ 14,000
Amount that should be recorded for the new vehicle = $ 14,000
3. Prepare a depreciation schedule using the straight-line method.
Year
Allocation Base
Depreciation Rate (%)
Depreciation Amt
Accumulated Depreciation
Book Value
1
$10000
0.20 x 1/2
$1000
1000
13000
2
$10000
0.20
2000
3000
11000
3
$10000
0.20
2000
5000
9000
4
$10000
0.20
2000
7000
7000
5
$10000
0.20
2000
9000
5000
6
$10000
0.20 x 1/2
1000
10000
4000
TOTAL
10000
***$14000 - $4000 = $10000
4. Record the sale of the vehicle two years later on July 1, 2021, for $8,500
** $14,000 cost minus accumulated depreciation Note that year 1 goes from July 1, 2019 to June 30, 2020. Depreciation expense in 2019 is only six months ($ 2000 x 6/12 = $ 1000).
JOURNAL ENTRY
July 1, 2021 Debit Credit
Cash $ 8500
Accumulated Depreciation $ 4000
Loss (10000-8500) $ 1500
To Equipment $ 14000
(to record loss on sale)
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ALL THE BEST !!!
Year
Allocation Base
Depreciation Rate (%)
Depreciation Amt
Accumulated Depreciation
Book Value
1
$10000
0.20 x 1/2
$1000
1000
13000
2
$10000
0.20
2000
3000
11000
3
$10000
0.20
2000
5000
9000
4
$10000
0.20
2000
7000
7000
5
$10000
0.20
2000
9000
5000
6
$10000
0.20 x 1/2
1000
10000
4000
TOTAL
10000