Question

Yoshi Company completed the following transactions and events involving its delivery trucks.

Year 1

Jan.		1		Paid $22,015 cash plus $1,635 in sales tax for a new delivery truck estimated to have a five-year life and a $2,150 salvage value. Delivery truck costs are recorded in the Trucks account.
Dec.		31		Recorded annual straight-line depreciation on the truck.

Year 2

Dec.

31

The truck’s estimated useful life was changed from five to four years, and the estimated salvage value was increased to $2,700. Recorded annual straight-line depreciation on the truck.

Year 3

Dec.		31		Recorded annual straight-line depreciation on the truck.
Dec.		31		Sold the truck for $5,400 cash.

Required:
1-a. Calculate depreciation for Year 2.
1-b. Calculate book value and gain (loss) for sale of Truck on December 31, Year 3.
1-c. Prepare journal entries to record these transactions and events.

Answer 1

1-a

Straight line depreciation for year 1=(Total cost of truck-Salvage value)/Total useful life

Total cost of truck=22,015+1,635

Total cost of truck=$23,650

Depreciation=(23,650-2,150)/5

=$4,300

Book value at starting of year 2=$23,650-$4,300

Bokk value at starting of year 2=$19,350

Annual depreciation=(Book value at starting of year2-Salvage value)/Remaining useful life

=(19,350-2,700)/3

=$5,550

Depreciation for year 2=$5,550

1-b

Depreciation for year 3=$5,550

Book value as at year end 3=Total cost of truck-Accumulated depreciation

Accumulated depreciation=$4,300+$5,550+$5,550

Accumulated depreciation=$15,400

Book value at year end=23,650-15,400

=$8,250

Book value at year end 3=$8,250

Cash received by selling truck=$5,400

Loss on sale of truck=Cash received-Book value as at year end

=5,400-8,250

Loss on sale =-$2,850

1-c

Date	General Journal	Debit	Credit
Jan1	Truck	$23,650
	Cash		$23,650
	(To record purchase of truck
Dec 31	Depreciation expense	$4,300
	Accumulated depreciation-Truck		$4,300
	(To record depreciation expense
Dec 31	Depreciation expense	$5,550
	Accumulated depreciation-Truck		$5,550
	(To record depreciation expense
Dec 31	Depreciation expense	$5,550
	Accumulated depreciation-Truck		$5,550
	(To record depreciation expense
Dec 31	Accumulated depreciation-Truck	$15,400
	Cash	$5,400
	Loss on sale of truck	$2,850
	Truck		$23,650
	(To record sale of truck