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 $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.

Great Adventures Problem AP7-1 Part 1

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. Record the depreciation expense and any other adjustments related to the vehicle on December 31, 2022. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.

Record the depreciation expense for the vehicle.

Record the expiration of prepaid insurance.

Answer 1

1	Capitalized cost of the vehicle
	Suburban Price	15400.00
	one-year insurance policy	2650.00
	repaint the vehicle	6400.00
	deluxe roof rack and a trailer hitch	2850.00
	Total Cost	27300.00
	As painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures, it needs to be capitalised.
	Journal Entry
	Equipment A/c	Dr.	27300.00
	To Vendor A/c	Cr		15400.00
	To Cash A/c	Cr		11900.00
	(Being Equipment Purchased)
2	Depreciation ( Per annum) on Straight Line method basis	=	Original cost -   Residual Value
			Useful Life
		=	27300-6200
			5
		=	4220
	relevant depreciation amount	=	4220/12*6		2110
	Journal Entry
	Depreciation A/c	Dr.	2110
	To Equipment	Cr		2110
	( Being Depreciation Charged)