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.

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:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
January 1, Year 1	Trucks (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.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31, Year 1	Depreciation 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:

$\begin{array}{c}\text{Acquisition cost of Truck}=\text{Purchase value}+\text{Sales tax}\\ =\text{\$20,515}+\$\text{1,485}\\ =\text{\$22,000}\end{array}$ (1)

Compute depreciation expense:

$\begin{array}{c}\text{Depreciation = }\frac{\left[\text{Acquisition cost of Truck– Salvage value}\right]}{\text{Useful life}}\\ \text{= }\frac{\text{\$22,000}-\text{\$2,000}}{\text{5 years}}\\ \text{= \$4,000}\end{array}$ (2)

Year 2:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31, Year 2	Depreciation 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 value	18,000
Less: Revised salvage value	(2,400)
Remaining depreciable amount	$15,600

Table (4)

…… (4)

Compute the revised depreciation for year 2

$\begin{array}{c}\text{Annual depreciation }=\frac{\text{Remaining depreciable amount}}{\text{Number of remaining useful years}}\\ =\frac{\text{\$15,600}\text{(4)}}{\text{(4}-1\text{) 3 years}}\\ =\$5,200\end{array}$ (5)

Year 3:

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31, Year 3	Depreciation 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.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
December 31, Year 3	Cash		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 Asset		22,000
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 truck		5,300
Loss on sale of Truck		(2,300)

Table (7)

...... (6)