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. 1/1/2018 Purchased a used delivery truck for $28,000, paying cash. 4/15/2018 Paid garage $675 for miscellaneous repairs to the truck. 12/31/2018 Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $5,000 for the truck. 3/31/2019 Sold the used delivery truck purchased for $15,000. (Record depreciation to date for the truck.) Instructions Journalize the transactions and the adjusting entries.

Answer 1

The journal entries are as follows:

A) Depreciation under double-declining-balance method is as follows:

Cost = $28,000

Useful Life = 4 Years

Salvage Value = $5,000

Depreciation under double-declining-balance method = 1/ Useful Life * 2*100

  = 1/4*2*100

  = 50%

B) Depreciation for the year 2018 = $28,000* 50% = $14,000

C) The truck was sold on 3/31/2019 is sold $5,000 as follows:

So gain or loss on truck sold is calculated below:

	$
Cost(1/1/2018)	28,000
Less: Depreciation on Truck (50%)	14,000
Book Value on 1/1/2019	14,000
Depreciation for 3 Months(1/1/2019 - 3/31/2019) = $14,000*50%*3/12	1,750
Book Value on 3/31/2019	12,250
Sale of Truck	15,000
Gain on Sale of Truck	$2,750

Journal Entries are:

Date	Account and Explanation	Debit ($)	Credit($)
1/1/2018	Deliver Truck	28,000
	Cash		28,000
	(Recorded the purchased of delivery of truck)
4/15/2018	Repair Expenses	675
	Cash		675
	( Recorded the payment of repair Expenses )
12/31/2018	Depreciation Expenses	14,000
	Accumulated Depreciation		14,000
	(Recorded the depreciation Expenses)
3/31/2019	Cash	15,000
	Accumulated Depreciation	15,750
	Delivery Truck		28,000
	Gain on Sale of Delivery Truck		2,750
	(Recorded the sale of the delivery truck)