The following transactions, adjusting entries, and closing entries were completed by Lodge Pole Pine Furniture Co. during a 3-year period. All are related to the use of delivery equipment. The declining-balance method (at twice the straight-line rate) of depreciation is used. 2005 Jan. 3 Purchased a used delivery truck for Rs.31,500, paying cash. Jan 5 Paid Rs.3,900 for a new transmission for the truck. The new transmission is expected to have a useful life equal to the remaining life of the truck. Aug. 16 Paid garage Rs.385 for miscellaneous repairs to the truck. Dec. 31 Recorded depreciation on the truck and transmission component for the fiscal year. The estimated useful life of the truck and transmission is 4 years, with a residual value of Rs.5,500 for the truck. 2006 Jan. 1 Purchased a new truck for Rs.68,000, paying cash. June 30 Sold the used truck for Rs.22,270 purchased in 2005. (Record depreciation to date in 2006 for the truck.) Aug. 10 Paid garage Rs.275 for miscellaneous repairs to the truck. Dec. 31 Recorded depreciation on the truck. It has an estimated residual value of Rs.7,500 and an estimated life of 5 years. 2007 July 1 Purchased a new truck for Rs.92,000, paying cash. Oct. 1 Sold the truck purchased January 1, 2006, for Rs.22,750. (Record depreciation for the year.) Dec. 31 Recorded depreciation on the remaining truck. It has an estimated residual value of Rs.5,000 and an estimated useful life of 8 years. Required: Journalize the transactions and the adjusting entries.
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.
The following transactions,
2005
Jan. 3 Purchased a used delivery truck for Rs.31,500, paying cash.
Jan 5 Paid Rs.3,900 for a new transmission for the truck. The new transmission is expected to have a useful life equal to the remaining life of the truck.
Aug. 16 Paid garage Rs.385 for miscellaneous repairs to the truck.
Dec. 31 Recorded depreciation on the truck and transmission component for the fiscal year. The estimated useful life of the truck and transmission is 4 years, with a residual value of Rs.5,500 for the truck.
2006
Jan. 1 Purchased a new truck for Rs.68,000, paying cash.
June 30 Sold the used truck for Rs.22,270 purchased in 2005. (Record depreciation to date in 2006 for the truck.)
Aug. 10 Paid garage Rs.275 for miscellaneous repairs to the truck.
Dec. 31 Recorded depreciation on the truck. It has an estimated residual value of Rs.7,500 and an estimated life of 5 years.
2007
July 1 Purchased a new truck for Rs.92,000, paying cash.
Oct. 1 Sold the truck purchased January 1, 2006, for Rs.22,750. (Record depreciation for the year.)
Dec. 31 Recorded depreciation on the remaining truck. It has an estimated residual value of Rs.5,000 and an estimated useful life of 8 years.
Required:
Journalize the transactions and the adjusting entries.
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