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In: Accounting

On January 1, 2011, Greg's Grocery purchased a truck for $41,000 that has an estimated useful...

On January 1, 2011, Greg's Grocery purchased a truck for $41,000 that has an estimated useful life of five years and a $1,000 residual value. Greg uses the straight-line depreciation method. Record the journal entries under each of the following disposal scenarios that may occur on March 31, 2013: a. The truck is in an accident and totaled. It is scrapped for $0. There are no insurance proceeds. b. Greg sells the truck for $10,000 cash. c. Gerg sells the truck and receives $20,000 plus a piece of equipment worth $5,000. d. Greg trades-in the truck for a new truck. The suggested retail price of the new truck is $32,000. e. Greg trades-in the truck plus pays $3,000 for a new truck. The suggested retail price of the new truck is $32,000.

Solutions

Expert Solution

Cost of assets 41000
Less: Salvage 1000
Depreciable cost 40000
Divide: Life 5
Annual dep 8000
Journal entries:
S.no. Accounts title and explanations Debit $ Credit $
Case-a
31.03.13 Depreciation Expense Dr. 2000
      Accumulated depreciation 2000
Accumulated dep Dr. (8000*2+2000) 18000
Loss on sale of asset Dr. 23000
      Truck equipment 41000
Case-b
31.03.13 Depreciation Expense Dr. 2000
      Accumulated depreciation 2000
Accumulated dep Dr. (8000*2+2000) 18000
Cash account Dr 10000
Loss on sale of asset Dr. 13000
      Truck equipment 41000
Case-c
31.03.13 Depreciation Expense Dr. 2000
      Accumulated depreciation 2000
Accumulated dep Dr. (8000*2+2000) 18000
Cash account Dr 20000
New Equipment Dr. 5000
       Gain on sale of assets 2000
      Truck equipment 41000
Case-d
31.03.13 Depreciation Expense Dr. 2000
      Accumulated depreciation 2000
Accumulated dep Dr. (8000*2+2000) 18000
New Equipment Dr. 32000
       Gain on sale of assets 9000
      Truck equipment 41000
Case-e
31.03.13 Depreciation Expense Dr. 2000
      Accumulated depreciation 2000
Accumulated dep Dr. (8000*2+2000) 18000
New Equipment Dr. 32000
       Gain on sale of assets 6000
      Truck equipment 41000
      Cash account 3,000

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