Question

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

Year 1

Jan.		1		Paid $20,515 cash plus $1,635 in sales tax for a new delivery truck estimated to have a five-year life and a $2,450 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 $5,500 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.

1A. Calculate depreciation for year 2.

Total cost
Less accumulated depreciation from year 1
book value
less revised salvage value
remaining cost to be depreciated
years of life remaining
total depreciation for year 2

1B. Calculate book value and gain (loss) for sale of truck on Dec. 31, year 3.

Depreciation expense for year 1
Depreciation expense for year 2
Depreciation expense for year 3
Accumulated depreciation 12/31/year 3
Book value of truck at 122/31/year 3
total cost
accumulated depreciation
book value 12/31/year 3
gain or loss on sale of truck

1C. Prepare journal entries to record these transactions and events.

Record the total cost of the new delivery truck, year-end adjusting entry for the depreciation expense of the delivery truck, year-end adjusting entry for the depreciation expense of the delivery truck, year-end adjusting entry for the depreciation expense of the delivery truck, and record the sale of the delivery truck for $5,500 cash.

Date	General Journal	Debit	Credit
Jan 01, yr 1
dec 31, yr 1
dec 31, yr 2
dec 31, yr 3
dec 31, yr 3

Answer 1

1A. Calculate depreciation for year 2.

Total cost	22150	20515+1635
Less accumulated depreciation from year 1	3940	(22150-2450)/5
book value	18210
less revised salvage value	2700
remaining cost to be depreciated	15510
years of life remaining	3
total depreciation for year 2	5170

1B. Calculate book value and gain (loss) for sale of truck on Dec. 31, year 3.

Depreciation expense for year 1	3940
Depreciation expense for year 2	5170
Depreciation expense for year 3	5170
Total Accumulated Depreciation	14280
total cost	22150
Net Book Value	7870
Sale Amount	5500
gain or loss on sale of truck	Loss 2370

1C. Prepare journal entries to record these transactions and events.

Record the total cost of the new delivery truck, year-end adjusting entry for the depreciation expense of the delivery truck, year-end adjusting entry for the depreciation expense of the delivery truck, year-end adjusting entry for the depreciation expense of the delivery truck, and record the sale of the delivery truck for $5,500 cash.

Date	General Journal	Debit	Credit
Jan 01, yr 1	TRUCK A/C DR TO CASH	22150	22150
dec 31, yr 1	DEPRECIATION A/C DR TO ACCUMULATED DEPRECIATION	3940	3940
dec 31, yr 2	DEPRECIATION A/C DR TO ACCUMULATED DEPRECIATION	5170	5170
dec 31, yr 3	DEPRECIATION A/C DR TO ACCUMULATED DEPRECIATION	5170	5170
dec 31, yr 3	CASH A/C DR LOSS ON SALE A/C DR TO TRUCK A/C	5500 2370	7870