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.

• Record the expenditures related to the vehicle on July 1, 2022. Note: The capitalized cost of the vehicle is recorded in the Equipment account.

• Record the expenditure related to vehicle maintenance on October 22, 2022.

• Record the depreciation for vehicle purchased. Use straight-line depreciation.

• Record the expiration of prepaid insurance.

• Record the closing entry for revenue accounts.

• Record the closing entry for expense accounts.

2) Prepare an Income Statement.

3) Prepare a Balance Sheet.

Answer 1

No.	Date	Account Titles and Explanation	Debit	Credit
1	Jul 01	Equipment	17000
		Prepaid insurance	1800
		Cash		18800
		(To record expenditures related to the vehicle)
2	Oct 22	Vehicle maintenance expense	400
		Cash		400
		(To record expenditure related to vehicle maintenance)
3	Dec 31	Depreciation expense [($17000 - $4500) = $12500 x 6/60]	1250
		Accumulated depreciation-equipment		1250
		(To record depreciation for vehicle purchased)
4	Dec 31	Insurance expense ($1800 x 6/12)	900
		Prepaid insurance		900
		(To record the expiration of prepaid insurance)
5	Dec 31	No Journal Entry Required
6	Dec 31	Income Summary	2550
		Vehicle maintenance expense		400
		Depreciation expense		1250
		Insurance expense		900
		(To record the closing entry for expense accounts)

Calculations:

Cost of the Suburban	$ 12,000
Painting	$    3,000
Roof rack and trailer hitch	$    2,000
Cost of vehicle capitalized	$ 17,000

No data is given in the question regarding revenue, assets, liabilities, equity in order to prepare the income statement and balance sheet.