Principles of Financial Accounting.
Principles of Financial Accounting.
24th Edition
ISBN: 9781260158601
Author: Wild
Publisher: MCG
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Chapter 10, Problem 5AP

Yoshi Company completed the following transactions and events involving its delivery trucks.

Chapter 10, Problem 5AP, Yoshi Company completed the following transactions and events involving its delivery trucks.

Required

Prepare journal entries to record these transactions and events.

Expert Solution & Answer
Check Mark
To determine

Prepare journal entries to record the given transaction and events.

Explanation of Solution

Plant assets:

Plant assets refer to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.

Prepare journal entries to record the given transaction and events as follows:

Year 1:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

January 1, Year 1Trucks (1) 22,000 
Cash  22,000
 (To record the purchase of truck)   

Table (1)

  • Truck is an asset account and it increases the value of asset. Therefore, debit the trucks account by $22,000.
  • Cash is an asset account and it decreases the value of asset. Therefore, credit Cash account by $22,000.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

December 31, Year 1Depreciation Expense (2) 4,000 
Accumulated Depreciation –          Trucks  4,000
 (To record the depreciation expense for truck)   

Table (2)

  • Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $4,000.
  • Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $4,000.

Working Notes:

Compute the acquisition cost of truck:

Acquisition cost of Truck=Purchase value+Sales tax=$20,515+$1,485=$22,000 (1)

Compute depreciation expense:

Depreciation = [Acquisition cost of Truck– Salvage value]Useful life$22,000$2,0005 years= $4,000 (2)

Year 2:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

December 31, Year 2Depreciation Expense (5) 5,200 
Accumulated Depreciation –          Trucks  5,200
 (To record the depreciation expense for truck)   

Table (3)

  • Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $5,200.
  • Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $5,200.

Working Notes:

Compute the remaining depreciable amount:

Computation of Depreciation
Particulars$
Acquisition cost, January 1, Year 1$22,000
Less: Accumulated depreciation for first year(4,000)
     Book value18,000
Less: Revised salvage value(2,400)
     Remaining depreciable amount$15,600

Table (4)

…… (4)

Compute the revised depreciation for year 2

Annual depreciation =Remaining depreciable amountNumber of remaining useful years =$15,600(4)(41) 3 years=$5,200 (5)

Year 3:

DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

December 31, Year 3Depreciation Expense (5) 5,200 
Accumulated Depreciation –          Trucks  5,200
 (To record the annual depreciation expense for truck)   

Table (5)

  • Depreciation expense is an expense account, and it decreases the value of equity. Hence, debit the depreciation expense by $5,200.
  • Accumulated depreciation is a contra asset, and it decreases the value of assets. Therefore, credit the accumulated depreciation by $5,200.
DateAccount Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

December 31, Year 3Cash 5,300 
Accumulated Depreciation –          Trucks (6) 14,400 
Loss on disposal of trucks (6) 2,300 
Trucks  22,000
 (To record the sale of truck)   

Table (6)

  • Cash is an asset account and it increases the value of asset. Therefore, debit cash account by $5,300.
  • Accumulated depreciation is a contra asset, and it increases the value of assets. Therefore, debit the accumulated depreciation by $14,400.
  • Loss on sale of truck is an expense account and it decreases the value of stockholder’s equity. Therefore, debit the loss on sale of truck by $2,300.
  • Truck is an asset account and it decreases the value of asset. Therefore, credit the trucks account by $22,000.

Working Notes:

Compute the gain or loss on the sale of truck:

Computation of Gain or Loss on Sale of Truck
Details Amount ($)Amount ($)
Cost of the Asset22,000
Less: Accumulated depreciation
       Year 1 (2)4,000 
       Year 2 (5)5,200 
       Year 3 (5)5,200(14,400)
   Book value of asset 7,600
Less: sold value of truck5,300
    Loss on sale of Truck (2,300)

Table (7)

...... (6)

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Chapter 10 Solutions

Principles of Financial Accounting.

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