Question

Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.

2017

Jan.		1		Paid $314,000 cash plus $12,560 in sales tax and $1,600 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $31,400 salvage value. Loader costs are recorded in the Equipment account.
Jan.		3		Paid $6,000 to enclose the cab and install air-conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,800.
Dec.		31		Recorded annual straight-line depreciation on the loader.

2018

Jan.		1		Paid $4,600 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.		17		Paid $1,150 to repair the loader after the operator backed it into a tree.
Dec.		31		Recorded annual straight-line depreciation on the loader.

Required:

Prepare journal entries to record these transactions and events.

Answer 1

Date	Account title	Debit	credit
2017
1 jan	Equipment	328160
	cash		328160
	[being equipment purchased and other cost capitalised]
3 jan	Equipment	6000
	cash		6000
31 dec	Depreciation expense	75240
	Accumulated depreciation -equipment		75240
2018
jan 1	equipment	4600
	cash		4600
Feb 17	Repair expense	1150
	cash		1150
dec 31	Depreciation expense	46064
	Accumulated depreciation -equipment		46064

**2017

salvage value : 31400+1800[=33200

cost :328160+6000=334160

Depreciation : [cost -salvage value ]/useful life

             =[334160-33200]/4

             = 75240

**2018

Book value at endof year1 =cost -accumulated depreciation

      = 334160-75240

     = 258920

Total carrying value after jan 1 = 258920+4600= 263520

useful life = 4-1 expired = 3+2 =5

depreciation = [Total carrying value after jan 1- salvage value]/useful life

               = [263520-33200]/5

               = 46064