Question

The following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used.

Year 1
Jan. 4.	Purchased a used delivery truck for $28,000, paying cash.
Nov. 2.	Paid garage $635 for miscellaneous repairs to the truck.
Dec. 31.	Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $4,640 for the truck.
Year 2
Jan. 6.	Purchased a new truck for $49,400, paying cash.
Apr. 1.	Sold the used truck for $15,180. (Record depreciation to date in Year 2 for the truck.)
June 11.	Paid garage $470 for miscellaneous repairs to the truck.
Dec. 31.	Record depreciation for the new truck. It has an estimated residual value of $9,470 and an estimated life of five years.
Year 3
July 1.	Purchased a new truck for $55,400, paying cash.
Oct. 2.	Sold the truck purchased January 6, Year 2, for $17,498. (Record depreciation to date for Year 3 for the truck.)
Dec. 31.	Recorded depreciation on the remaining truck. It has an estimated residual value of $12,955 and an estimated useful life of eight years.

Answer 1

Date	Account Title & Explanation	Debit	Credit
Year 1
Jan.04	Delivery Truck	$28000
	Cash		$28000
	(To record purchase of used delivery truck)
Nov.02	Repair and Maintenance	$635
	Cash		$635
	(To record paid garage for misc. repair)
Dec.31	Depreciation Expense	$14000
	Accumulated Depreciation		$14000
	(To record Depreciation Expense)
Year 2
Jan.06	Truck	$49400
	Cash		$49400
	(To record purchase of new truck)
Apr. 01	Depreciation Expense	$1750
	Accumulated Depreciation		$1750
	(To record Depreciation Expense up to date of sale)
Apr. 01	Cash	$15180
	Accumulated Depreciation	$15750
	Delivery Truck		$28000
	Gain on sale		$2930
	(To record sale of used delivery truck)
June.11	Repair and Maintenance	$470
	Cash		$470
	(To record paid garage for misc. repair)
Dec.31	Depreciation Expense	$19760
	Accumulated Depreciation		$19760
	(To record Depreciation Expense of new truck)
Year 3
July.01	Truck	$49400
	Cash		$49400
	(To record purchase of new truck)
Oct.02	Depreciation Expense	$1750
	Accumulated Depreciation		$1750
	(To record Depreciation Expense up to date of sale)
Oct.02	Cash	$17498
	Accumulated Depreciation	$28652
	Loss on sale	$3250
	New Truck		$49400
	(To record sale of new truck)
Dec.31	Depreciation Expense	$6925
	Accumulated Depreciation		$6925
	(To record Depreciation Expense of new truck)

Workings:

Used Delivery Truck:

Depreciation expense for year 1 = Cost of truck x Double declining rate

Double declining rate = (100 / useful life) x 2 = (100 / 4) x 2 = 50%

Depreciation expense = $28000 x 50% = $14000

Depreciation expense upon used truck for year 2 = {($28000 - $14000) x 50%} x 3/12 = {$14000 x 50%} x 3/12 = $1750

Accumulated Depreciation = $14000 + $1750 = $15750

Book Value = $28000 - $15750 = $12250

Sale price = $15180

Gain on sale = $15180 - $12250 = $2930

New Truck:

Depreciation expense for year 1 = Cost of truck x Double declining rate

Double declining rate = (100 / useful life) x 2 = (100 / 5) x 2 = 40%

Depreciation expense = $49400 x 40% = $19760

Depreciation expense upon used truck for year 3 = {($49400 - $19760) x 40%} x 9/12 = {$29640 x 40%} x 9/12 = $8892

Accumulated Depreciation = $19760 + $8892 = $28652

Book Value = $49400 - $28652 = $20748

Sale price = $17498

Loss on sale = $20748 - $17498 = $3250

New Truck 2:

Depreciation expense for year 1 = Cost of truck x Double declining rate

Double declining rate = (100 / useful life) x 2 = (100 / 8) x 2 = 25%

Depreciation expense = ($55400 x 25%) x 6/12 = $6925