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, 2025, for $15,000. They expect to use the Suburban for five years and then sell the vehicle for $6,000. The following expenditures related to the vehicle were also made on July 1, 2025: The company pays $2,550 to GEICO for a one-year insurance policy. The company spends an extra $6,000 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $2,750 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, 2025, the company pays $1,900 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter. Record the expenditures related to the vehicle on July 1, 2025. Note: The capitalized cost of the vehicle is recorded in the Equipment account. Record the expenditure related to vehicle maintenance on October 22, 2025. Record the depreciation for vehicle purchased. Use straight-line depreciation. Record the expiration of prepaid insurance. Record the closing entry for revenue accounts. Record the closing entry for expense accounts.
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, 2025, for $15,000. They expect to use the Suburban for five years and then sell the vehicle for $6,000. The following expenditures related to the vehicle were also made on July 1, 2025: The company pays $2,550 to GEICO for a one-year insurance policy. The company spends an extra $6,000 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $2,750 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, 2025, the company pays $1,900 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter. Record the expenditures related to the vehicle on July 1, 2025. Note: The capitalized cost of the vehicle is recorded in the Equipment account. Record the expenditure related to vehicle maintenance on October 22, 2025. Record the depreciation for vehicle purchased. Use straight-line depreciation. Record the expiration of prepaid insurance. Record the closing entry for revenue accounts. Record the closing entry for expense accounts.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text: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, 2025, for $15,000. They expect to use the Suburban for five years and then sell
the vehicle for $6,000. The following expenditures related to the vehicle were also made on July 1, 2025: The company
pays $2,550 to GEICO for a one-year insurance policy. The company spends an extra $6,000 to repaint the vehicle,
placing the Great Adventures logo on the front hood, back, and both sides. An additional $2,750 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, 2025, the company pays $1,900 for basic vehicle maintenance
related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter. Record the
expenditures related to the vehicle on July 1, 2025. Note: The capitalized cost of the vehicle is recorded in the
Equipment account. Record the expenditure related to vehicle maintenance on October 22, 2025. Record the
depreciation for vehicle purchased. Use straight-line depreciation. Record the expiration of prepaid insurance. Record
the closing entry for revenue accounts. Record the closing entry for expense accounts.
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