Champion Contractors completed the following transactions involving equipment. Year 1 January 1 Paid $287,600 cash plus $11,500 in sales tax and $1,500 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $20,600 salvage value. Loader costs are recorded in the Equipment account. January 3 December 31 Year 2 Paid $4,800 to install air-conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,400. Recorded annual straight-line depreciation on the loader. January 1 Paid $5,400 to overhaul the loader's engine, which increased the loader's estimated useful life by two years. February 17 Paid 5820 for minor repairs to the loader after the operator backed it into a tree. December 31 Recorded annual straight-line depreciation on the loader. Required: Prepare journal entries to record these transactions and events.

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Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.