On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truc
ID: 2566542 • Letter: O
Question
On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. Marino uses the straight-line method On January 1, Year 3, Marino's accounting records contained the balances shown in the following financial statements model. Balance Sheet Cash Flow Assets Income Statement Statement Cash Truck Acc. DepLiab. +Equity 5,0004 Rev. Exp NA Net Inc. NA 48,00020,000 NA 53,000 NA NA Also, on January 1, Year 3 the company paid $10,000 to replace an engine that would extend the useful life of the truck from a total of four years to a total of seven years. Which of the following shows how the engine replacement will affect the Company's financial statements on January 1, Year 3? Balance Sheet Cash Flow Assets Income Statement Statement Cash + Truck -Acc. Dep.= Liab. + Equity 10,000 Rev. NA Exp Net Inc. 10,000 NA NA NA NA NA (10,000) IA Balance Sheet Cash Flow Assets Income Statement Statement Cash + Truck Acc. Dep: Liab. + Equity 10,000 Rev. Exp Net Inc. NA 10,000 NA NA NA NA NA (10,000) OA Balance Sheet Cash Flow Assets Income Statement Statement Cash + Truck -Acc. Dep.= Liab. + Equity 10,000 Rev.- Exp.Net Inc. NA NA(10,000) NA NA NA NA (10,000) IA Balance Sheet Cash Flow Assets Income Statement Statement Cash 10,000 Truck - Acc. DepLiab. +Equity Rev. NA Exp. Net Inc. NA(10,000 NA NA NA NA 10.000 OAExplanation / Answer
Part1: Answer is: Balance Sheet Income Statement Cash Flow Sattement Cash + Truck- Accumulated Dep = Liab + Equity Rev-Exp=Net INC ( 10000) + 10000 (10000) IA Explanation is: As it increase the life of the truck, so it is added in cost of asset and will become cah outflow from Investing Activities Part 2: Answer is: Truck Dr. 10000 cash Account Cr. 10000 The explanations is: As the expenditures increase the efficiency of the asset, therefore, it will be debited to cost of asset. Part 3: Answer is $ 6,000 Explanation is: Remaining life of asset before replcement = 2 years Remaining depreciable amount before replacement (40000-20000) = $ 20,000 After replacement, Remaining life increases by 3 years ( 2+3) = 5 years Depreciable amount increase by cost of engine after replacement ( 20000+10000) $ 30,000 Therefore, Depreciation expense for Year 3: 30,000 / 5 years = $ 6,000 Part 4: Answer is $ 35,000 Explanation is: Remaining life of asset before replcement = 2 years Remaining depreciable amount before replacement (40000-20000) = $ 20,000 After replacement, Remaining life remain same i.e. 2 years Depreciable amount increase by cost of engine after replacement ( 20000+10000) $ 30,000 Therefore, Depreciation expense for Year 3: 30,000 / 2 years = $ 15,000 Balance of Accumulated depreciation at the end Year 3 = Balance at end of 2nd year+ Dep for Year 3 20000+ 15000 = $35,000