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In: Accounting

Required information [The following information applies to the questions displayed below.] Tony and Suzie see the...

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.)

Solutions

Expert Solution

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.

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