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Tony and Suzie see the need for a rugged all-terrain vehicle totransport participants and supplies....


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 $15,600. They expect to use the Suburban for five years and then sell the vehicle for $6,300. The following expenditures related to the vehicle were also made on July 1, 2022:

  • The company pays $2,700 to GEICO for a one-year insurance policy.

  • The company spends an extra $6,600 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides.

  • An additional $2,900 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 $2,200 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter.


Solutions

Expert Solution

it is assumed that you follow calendar year as financial year

A) when insurance is paid

July 1, 2022

Vehicle insurance account.............DR 2700

cash/bank account..............CR 2700

B) at the of end of financial year

December 31, 2022

Profit-loss account......DR 1575

Vehicle insurance account.....CR 1575

computation :- insurance is paid for one year therefore current year expense will be i.e. 1575 and the remaining balance shall be transfer to balance sheet as prepaid expense.

jeff jeffy answered 2 years ago
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