Question

Cyber Systems completed the following transactions involving delivery trucks:

2017

Aug 7:                 Paid cash for a new delivery truck, $38,830 plus $2,330 in additional costs required to put the asset in use. The truck was estimated to have a 5-year service life and a $6,000 salvage value.

2019

July 11:               Traded-in the old truck and paid $42,100 in cash for the new truck. The new truck is estimated to have a 6-year service life and a salvage value of $6,200. The invoice for the exchange indicated the following:

                                           Invoice price of the new truck                                $57,620

                                           Options required to put the truck in use                    2,280

Trade-in allowance - old truck                                 (17,800)

                                           Cash paid out                                                              $42,100

                                                                                                                                               

Cyber Systems’ policy is to use the Nearest Whole month method for recording part year depreciation.

Required:

1. Prepare journal entries to record the acquisition of the delivery truck on August 7, 2017

2. Prepare the adjusting journal entries to record Straight Line depreciation at December 31, 2017 and December 31, 2018 (one journal entry for each year).

3. Prepare the adjusting journal entry to bring the depreciation on the old truck up to date as of its disposal date.

4. Record the acquisition of the new truck on July 11, 2019, including any gain or loss on the exchange.

5. Prepare the journal entry to record Straight Line depreciation on the new truck at December 31, 2019.

Explanations are not required, but please date the entries and show your calculations.

              Account Titles for your journal entries:

• Cash
• Equipment
• Accumulated Depreciation – Equipment
• Depreciation Expense
• Gain / Loss on Exchange

Answer 1

	Calculation Part	Amount
Aug-07	Purchase cost of old equipment	38,830
	Cost of put to use	2,330
	Total Costs	41,160
	Salvage Value	6,000
	Depreciable Value	35,160
	Useful life	5 years
	Depreciation per year	7,032
2017	Depreciation for 07-aug to 31-dec
	(25+30+31+30+31) = 147 days	2,832
2018	Depreciation for full year	7,032
2019
Jul-11	Deprecation for 1-jan to July 10	3,679
	(31+28+31+30+31+30+10) = 191 days
Jul-11	Asset net value	27,617
	(41160-2832-7032-3679)
Jul-11	trade in allowance	17,800
	Gain/(loss) from sale	-9,817
Jul-11	New Truck
	Purchase cost	57,620
	Cost of put to use	2,280
	Total Costs	59,900
	Salvage Value	6,200
	Depreciable Value	53,700
	Useful life	6 years
	Depreciation per year	8,950
Dec-31	Depreciation for 11-july to 31-dec
	(21+31+30+31+30+31) = 174 days	4,267

Date	Particulars	Debit	Credit
2017
Aug-07	Equipment account Dr	41160
	Cash account Cr		41160
Dec-31	Depreciation Expense Dr	2832
	Accumulated depreciation - Equipment Cr		2832
2018
Dec-31	Depreciation Expense Dr	7032
	Accumulated depreciation - Equipment Cr		7032
2019
Jul-11	Depreciation Expense Dr	3679
	Accumulated depreciation - Equipment Cr		3679
Jul-11	Equipment Account (new) Dr	59900
	Accumulated depreciation - Equipment Dr	13543
	Loss on Exchange A/c Dr	9817
	Equipment account (old) Cr		41160
	Cash Cr		42100
Dec-31	Depreciation Expense Dr	4,267
	Accumulated depreciation - Equipment Cr		4,267