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. The cost of the Suburban is $10,000. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,550 per year. The paint is starting to fade, so they spend an extra $2,500 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $1,500 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. They expect to use the Suburban for five years and then sell the vehicle for $4,000.

1. Determine the amount that should be recorded for the new vehicle.

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

4. Record the sale of the vehicle two years later on July 1, 2021, for $8,500

Answer 1

1. Determine the amount that should be recorded for the new vehicle

Purchase price                                   $10,000

Painting and new logo                       $ 2500

Deluxe roof rack and trailer hitch     $ 1500

Total                                                $ 14,000

Amount that should be recorded for the new vehicle = $ 14,000

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

Year	Allocation Base	Depreciation Rate (%)	Depreciation Amt	Accumulated Depreciation	Book Value
1	$10000	0.20 x 1/2	$1000	1000	13000
2	$10000	0.20	2000	3000	11000
3	$10000	0.20	2000	5000	9000
4	$10000	0.20	2000	7000	7000
5	$10000	0.20	2000	9000	5000
6	$10000	0.20 x 1/2	1000	10000	4000
TOTAL			10000

***$14000 - $4000 = $10000

4. Record the sale of the vehicle two years later on July 1, 2021, for $8,500

** $14,000 cost minus accumulated depreciation Note that year 1 goes from July 1, 2019 to June 30, 2020. Depreciation expense in 2019 is only six months ($ 2000 x 6/12 = $ 1000).

JOURNAL ENTRY

July 1, 2021 Debit          Credit

Cash                                                  $ 8500

Accumulated Depreciation                $ 4000

Loss (10000-8500) $ 1500

To Equipment                                            $ 14000

(to record loss on sale)

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ALL THE BEST !!!