In: Accounting
Required information [The following information applies to the questions displayed below.] 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 $400 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter. Required:
1. Record the expenditures related to the vehicle on July 1, 2022. Note: The capitalized cost of the vehicle is recorded in the Equipment account. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Entries | |||
Date | Particulars | Debit ($) | Credit ($) |
1/7/2022 | Equipment | 12000 | |
Cash at Bank | 12000 | ||
To record the purchase of suburban with a useful life of 5 years and salvage value of $4500 | |||
1/7/2022 | Insurance | 1800 | |
Cash at Bank | 1800 | ||
To record insurance paid to GEICO | |||
1/7/2022 | Equipment | 5000 | |
Cash at Bank | 5000 | ||
To record additional expenditure incurred on the vehicle which increases the future economic benefits | |||
22/10/2022 | Repairs and Maintenance expenses | 400 | |
Cash at Bank | 400 | ||
To record the repair and maintenance expenses incurred |
Note 1: Salvage value need not be recorded | |||
Note 2: Other expenditure incurred on July 1 2022 | |||
Particulars | Amount ($) | Nature of expenditure | Treatment |
Insurance paid to GEICO | 1800 | Revenue | Insurance paid is a revenue expenditure the benefits of which expire within a year. Hence, the same has to be recorded as expense |
Repaint the vehicle | 3000 | Capital | As this expenditure will increase the future economic benefits, the same has to be capitalised |
Deluxe roof rack and others | 2000 | Capital | As this expenditure will increase the future economic benefits, the same has to be capitalised |
Note 3: Expenditure on October 22, 2022 - The expenditure incurred is in the nature of basic vehicle maintenance which is a recurring expenditure and hence, revenue in nature. |