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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 $15,400. They expect to use the Suburban for five years and then sell the vehicle for $6,200. The following expenditures related to the vehicle were also made on July 1, 2022:

• The company pays $2,650 to GEICO for a one-year insurance policy.
• The company spends an extra $6,400 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides.
• An additional $2,850 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 $2,100 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.)

2. Prepare a depreciation schedule using the straight-line method.

  

	GREAT ADVENTURES End of Year Amounts Year Depreciation Expense Accumulated Depreciation Book Value 2022 2023 2024 2025 2026 2027 Total

3. Record the depreciation expense and the expiration of prepaid insurance related to the vehicle on December 31, 2022

  

Answer 1

we shall first find out capitalized cost

purchase cost	$15,400
painting of vehicle	$6,400
roof rack and trailer hitch	$2,850
capitalized cost of equipment [15400+6400+2850]	$24,650

the costs that increases the value of equipment and are generally non recurring in nature should be capitalized.

Annual insurance is recurring and has no long term benefit so it should be expensed and not capitalized.

Amount of insurance is recorded as prepaid on July 2022 and will be adjusted for insurance expired in December.

(1) journal entry

	date	account name	debit	credit
	July 1, 2020	equipment	$24,650
		prepaid insurance	$2,650
		cash [24650+2650]		$27,300

(2) depreciation straight line = cost-salvage value / number of useful years

for the first year depreciation would be half as for period July- december

depreciation = $24,650-$6,200 /5

=3,690$

1st year = 3690/2=1845$

Depreciation schedule

REAT ADVENTURES
End of Year Amounts
Year	Depreciation Expense	Accumulated Depreciation	Book Value
2022	$1845	$1845	$22,805[24650-1845]	July 1 2022-December 2022
2023	$3690	$5,535(1845+3690)	[$19,11524650-5535]	1Jan 2023-December 2023
2024	$3690	$9,225	$15,425[24650-9225]	1 Jan 2024-December 2024
2025	$3690	$12,915	$11,735[24650-12915]	1 Jan 2025-December 2025
2026	$3690	$16,605	$8,045[24650-16605]	1Jan 2026-decemeber 2026
2027	$1845	$18,450	$6,200 [24650-18450]	1 Jan 2027-June 2027
Total

(3) Record the depreciation expense and the expiration of prepaid insurance related to the vehicle on December 31, 2022

	Date	account	debit	credit
	December 31,2022	depreciation expense	$1845
		accumulated depreciation		$1845
		(to record depreciation expense)
		insurance expense	$1,325
		prepaid insurance		$1,325
		(to record insurance expense)

insurance to be expensed = insurance expense/ number of months *months in a current year for which expense to be recorded

=$2650/12months (1year) * 6 months (July-December)

=1,325

NOTE:

n addition, on October 22, 2022, the company pays $2,100 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter.

it is a revenue expense recurring in nature hence, it will not be capitalized but it will expensed in the year in which it is incurred.