Question

Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $12,000. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,800 per year. The paint is starting to fade, so they spend an extra $3,000 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $2,000 is spent on a deluxe roof rack and a trailer hitch. The painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures. They expect to use the Suburban for five years and then sell the vehicle for $4,500.

Required:

Determine the amount that should be recorded for the new vehicle.

Indicate where any amounts not included in the Equipment account should be recorded.

Prepare a depreciation schedule using the straight-line method. Follow the example in Illustration 7–11, except the first and last years will have a half-year of depreciation to reflect the beginning of its service life on July 1, 2019.

Record the sale of the vehicle two years later on July 1, 2021, for $10,000.

Answer 1

1)

Calculation of the amount that should be recorded for the new vehicle.
Purchase price of the Vehicle	$ 12,000.00
Repainting and logo Cost	$    3,000.00
Deluxe roof rack and trailer hitch	$    2,000.00
Total	$ 17,000.00

2) Annual insurance from GEICO runs $1,800 per year to be expensed as incured over the period from July, 1 , 2019 to June 30,2020.

3) Depreciation Asset cost = 17,000- 4,500= 12,500.

So Depreciaton Every Year= 12,500/5=2,500.

However First Year being half year used depreciation expenses will be = 2,500*6/12= 1,250.

Year	Deprecation Expense	Accumulated Depreciation	Book Value
0			$ 17,000.00
1	$                        1,250.00	$                                   1,250.00	$ 15,750.00
2	$                        2,500.00	$                                   3,750.00	$ 13,250.00
3	$                        2,500.00	$                                   6,250.00	$ 10,750.00
4	$                        2,500.00	$                                   8,750.00	$    8,250.00
5	$                        2,500.00	$                                 11,250.00	$    5,750.00
6	$                        1,250.00	$                                 12,500.00	$    4,500.00

4)

		Debit	Credit
July 1,2021	Cash	$ 10,000.00
	Accumulated Depreciation	$    5,000.00
	Loss on Sale of Equipment	$    2,000.00
	Equipment		$ 17,000.00
	(To record sale of equipment and gain/loss)