On January 1, 2020, Land’s End Construction purchased a used truck for $52,500. A new motor...

On January 1, 2020, Land’s End Construction purchased a used truck for $52,500. A new motor had to be in- stalled to get the truck in good working order; the costs were $21,000 for the motor and $7,500 for the labour. The truck was also painted for $6,000. It was ready for use by January 4. A 12-month insurance policy costing $5,100 was purchased to cover the vehicle. The driver filled it with $225 of gas before taking it on its first trip. It is estimated that the truck has a five-year useful life and a residual value of $9,000. Land’s End uses the straight-line method to depreciate all of its vehicles. Prepare the entry to record the purchase of truck, insur- ance, and gas, and record the depreciation at year-end, December 31, 2020.

Expert Solution

Cost of truck equipment:
Purchase price			52500
Add: Installation of Motor (21000+7500)	28500
Add: Cost of Painting			6000
Total Cost of Truck equipment		87000
Less: Salvage value			9000
Depreciable cost			78000
Divide: Life			5
Annual depreciation			15600

Journal entry
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Truck equipment			87000
	Cash account				87000
	(for truck purchased)
b.	Gas expenses			225
	Cash account				225
	(for gas fuel incurred)
c.	Insurance expenses			5100
	Cash account				5100
	(for isnurance taken)
d.	Depreciation expense		15600
	Accumulated depreciation-Truck		15600
	(for depreciation charged)

ekkarill92 answered 2 years ago

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