Accounting for Plant Assets Basin’s depreciation policies include (1) using stra
ID: 2570828 • Letter: A
Question
Accounting for Plant Assets
Basin’s depreciation policies include (1) using straightline depreciation, (2) recording depreciation to the nearest whole month, and (3) expensing all truck expenditures of $100 or less.
Required
Year 1 Jan. 5 Purchased for $16,300 cash a new truck with an estimated useful life of four years and a salvage value of $4,300 Feb. 20 Installed a new set of side-view mirrors at a cost of $68 cash. une 9 Paid $325 for an engine tune-up, wheel balancing, and a periodic chassis lubrication. Aug. 2 Paid a $410 repair bill for the uninsured portion of damages to the truck caused by Basin's own driver. Dec. 31 Recorded depreciation on the truck for the year. Year 2 May 1 Installed a set of parts bins in the truck at a cost of $800 cash. This expenditure was not expected to increase the salvage value of the truck. Recorded depreciation on the truck for the year 31 Year 3 Dec. 31 Recorded depreciation on the truck for the year.Explanation / Answer
Journal entries to record these transactions and adjustments. General Journal Date Description Debit Credit Year 1 Jan.5 Delivery Truck $16,300 Cash $16,300 Feb.20 Repairs & Maintenance Expense $68 Cash $68 June.9 Delivery Truck $325 Cash $325 Aug.2 Delivery Truck $410 Cash $410 Dec.31 Depreciation $3,090 Accumulated depreciation - Delivery Truck $3,090 Year 2 May.1 Delivery Truck $800 Cash $800 Dec.31 Depreciation $3,317 Accumulated depreciation - Delivery Truck $3,317 Year 3 Dec.31 Depreciation $3,384 Accumulated depreciation - Delivery Truck $3,384 Calculation of depreciation using straight line method Depreciation per year on Original cost of delivery truck = (Cost - salvage value)/useful life = ($16300 - $4300)/4 = $3000 Depreciation per year on new set of side view mirrors = $325 / 4 years = $81.25 Depreciation per year on repair bill = $410 / 4 years = $102.50 Depreciation per year on set of parts bins in the truck = $800 / 4 years = $200 Year 1 Year 2 Year 3 Original cost of delivery truck $3,000 $3,000 $3,000 set of side view mirrors (Year 1 depreciation for 7 months) $47 $81 $81 Repair bill (Year 1 depreciation for 5 months) $43 $103 $103 set of parts bins (Year 2 depreciation for 8 months) $133 $200 Total Depreciation $3,090 $3,317 $3,384