Question

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 company pays $1,800 to GEICO for a one-year insurance policy.
• The company spends an extra $3,000 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides.
• An additional $2,000 is spent on a deluxe roof rack and a trailer hitch.

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.

3. Prepare a depreciation schedule using the straight-line method.

4. Record the depreciation expense and any other adjustments related to the vehicle on December 31, 2022. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

5. Record the sale of the vehicle two years later on July 1, 2024, for $10,000

Answer 1

value of the asset = purchase price + all expenses which increase the future benefit of the asset

= 12000+3000+2000

=17000

Calculation of Straight-line depreciation rate
A	Asset value	17000
B	Salvage value	4500
C	Life of the asset	5
D	depreciation	2500	(A-B)/C

Depreciation Schedule under straight-line Method
Year	opening balance of asset (A)	depreciation (B)	Accumulated depreciation (C)	WDV of at the end (D)= A-B
2022	17000	1250*	1250	15750
2023	15750	2500	3750	13250
2024	13250	2500	6250	10750
2025	10750	2500	8750	8250
2026	8250	2500	11250	5750

*Note * 6-month depreciation as used from July

2) jOURNAL Entry for depreciation

Date title Debit $ credit $

Dec 31 Depreciation expense 1250  

Accumulated depreciation 1250

( to record 6-month depreciation)

3) Sale of the vehicle on July 1 2024

Date title Debit $ credit $

July 1 Cash 10000

loss on sale    2000

Vehicle (PPE) 12000

( To record sale of a vehicle for loss)

31-dec Insurance expense Dr 900

Prepaid expenses    900

( to record Insurance expense for the current year)

WDV of Vehicle on July 1, 2024, = Beginning balance - depreciation for 6 month

=13250-1250

=12000

Insurance expenses transferred to Income statement = Prepaid Expense * 6/12

=1800 * 6/12 ( For 6month)

=$ 900