In: Accounting
Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban on July 1, 2022, for $12,000. They expect to use the Suburban for five years and then sell the vehicle for $4,500. The following expenditures related to the vehicle were also made on July 1, 2022:
The painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures. In addition, on October 22, 2022, the company pays $400 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter.
1
Record the expenditures related to the vehicle on July 1, 2022. Note: The capitalized cost of the vehicle is recorded in the Equipment account.
2
Record the expenditure related to vehicle maintenance on October 22, 2022.
3
Record the depreciation for vehicle purchased. Use straight-line depreciation.
4
Record the expiration of prepaid insurance.
5
Record the closing entry for revenue accounts.
6
Record the closing entry for expense accounts.
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Great Adventures | ||
Workings for capitalized cost of the vehicle | Note | |
Purchase cost of Suburban | 12,000.00 | |
Add: Cost of repainting | 3,000.00 | |
Add: Cost of roof and trailer | 2,000.00 | |
Total Cost | 17,000.00 | A |
Less: Residual Value | 4,500.00 | B |
Depreciable Cost | 12,500.00 | C=A-B |
Life (Years) | 5.00 | D |
Annual Depreciation | 2,500.00 | E=C/D |
Depreciation for 6 months (July to December) | 1,250.00 | F=E/12*6 |
Insurance cost will not be capitalized. It will treated as expense. | ||
Insurance cost | 1,800.00 | G |
Period (months) | 12.00 | H |
Expense for 6 months (July to December) | 900.00 | I=G/H*6 |
Maintenance cost will not be capitalized. It will treated as expense. |
Date | Journal entries | Debit $ | Credit $ |
1-Jul | Equipment | 17,000.00 | |
Cash | 17,000.00 | ||
1-Jul | Prepaid Insurance | 1,800.00 | |
Cash | 1,800.00 | ||
22-Oct | Repairs | 400.00 | |
Cash | 400.00 | ||
31-Dec | Depreciation Expense | 1,250.00 | |
Accumulated Depreciation | 1,250.00 | ||
31-Dec | Insurance Expense | 900.00 | |
Prepaid Insurance | 900.00 | ||
31-Dec | There is no revenue account so no entry. | ||
31-Dec | Income Summary | 2,550.00 | |
Repairs | 400.00 | ||
Depreciation Expense | 1,250.00 | ||
Insurance Expense | 900.00 | ||
(Closing entry for expense accounts) |