Journalize the transactions and
Explanation of Solution
Disposal of Assets: Disposal is an activity of selling the worn-out assets that is no longer in need for the business, in return of some consideration. Disposal may be made in any of the following situations:
- Disposal with no gain no loss: When the asset is disposed with no consideration received.
- Disposal with gain: When the asset is disposed for more than its book value (original cost less
accumulated depreciation ). - Disposal with loss: When the asset is disposed for less than its book value.
Double-declining-balance method: It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less accumulated depreciation) of the long-term asset is decreased by a fixed rate. It is double the rate of the straight-line depreciation. Use the following formula to determine the annual depreciation:
Journalize the transactions and adjusting entries for Year 1.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
Year 1 | ||||
January 8 | Delivery Truck | 24,000 | ||
Cash | 24,000 | |||
(To record the purchase of an used delivery truck.) | ||||
March 7 | Truck Repair Expense | 900 | ||
Cash | 900 | |||
(To record the truck repair expense incurred.) | ||||
December 31 | Depreciation Expense-Delivery Truck | 12,000 (1) | ||
Accumulated depreciation-Delivery Truck | 12,000 | |||
(To record the depreciation expense for the used delivery truck.) |
Working note 1: Determine the amount of depreciation expense of the used delivery truck for the year1.
Cost of the used delivery truck= $24,000
Estimated Useful Life =4 years
Year 1
January 8: Record the purchase of an used delivery truck.
- Delivery Truck is an asset, and it is increased by $24,000. Therefore, debit Delivery Truck account by $24,000.
- Cash is an asset, and it is decreased by $24,000. Therefore, credit cash with $24,000.
March 7: Record the miscellaneous repairs expense incurred for delivery truck.
- Truck Repairs Expense is an expense and a component of
stockholders’ equity. It is increased by $900 which reduces the stockholders’ equity. Therefore, debit Truck Repairs Expense account by $900. - Cash is an asset, and it is decreased by $900. Therefore, credit cash with $900.
December 31: Record an adjusting entry for depreciation expense.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $12,000 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $12,000.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $12,000. Therefore, credit Accumulated depreciation – Delivery Truck by $12,000.
Journalize the transactions and adjusting entries for Year 2.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
Year 2 | ||||
January 9 | Delivery Truck | 50,000 | ||
Cash | 50,000 | |||
(To record the purchase of delivery truck.) | ||||
February 28 | Truck Repair Expense | 250 | ||
Cash | 250 | |||
(To record the truck repair expense incurred.) | ||||
April 30 | Depreciation Expense-Delivery Truck | 2,000 (2) | ||
Accumulated depreciation-Delivery Truck | 2,000 | |||
(To record the depreciation expense for the used delivery truck.) | ||||
April 30 | Cash | 9,500 | ||
Accumulated depreciation-Delivery Truck | 14,000 | |||
Loss on sale of Delivery Truck | 500(3) | |||
Delivery Truck | 24,000 | |||
(To record the sale of the used delivery truck.) | ||||
December 31 | Depreciation Expense-Delivery Truck | 12,500 (4) | ||
Accumulated depreciation-Delivery Truck | 12,500 | |||
(To record the depreciation expense for the new truck.) |
Table (2)
Working note 2: Calculate the Depreciation expense for the used delivery truck sold.
Cost of the used delivery truck =$24,000
Accumulated Depreciation =$12,000 (1)
Estimated Useful Life =4 years
Number of months used in Year 2 = 4months (January 1-April 30)
Working note 3: Calculate the gain or (loss) on the sale of the used delivery truck.
Cash received on sale =$9,500
Cost of the used delivery truck =$24,000
Accumulated Depreciation =
Working note 4: Determine the amount of depreciation expense of the new delivery truck for the year2.
Cost of the new delivery truck= $50,000
Estimated Useful Life =8 years
Year 2
January 9: Record the purchase of a new delivery truck.
- Delivery Truck is an asset, and it is increased by $50,000. Therefore, debit Delivery Truck account by $50,000.
- Cash is an asset, and it is decreased by $50,000. Therefore, credit cash with $50,000.
February 28: Record the miscellaneous repairs expense incurred for delivery truck.
- Truck Repairs Expense is an expense and a component of stockholders’ equity. It is increased by $250 which reduces the stockholders’ equity. Therefore, debit Truck Repairs Expense account by $250.
- Cash is an asset, and it is decreased by $250. Therefore, credit cash with $250.
April 30: Record the depreciation expense for the used delivery truck.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $2,000 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $2,000.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $2,000. Therefore, credit Accumulated depreciation – Delivery Truck by $2,000.
April 30: Record the sale of the used delivery truck.
- Cash is an asset, and it is increased by $9,500. Therefore, debit cash with $9,500.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The decrease in accumulated depreciation increases the asset by $14,000. Therefore, debit Accumulated depreciation – Delivery Truck by $14,000.
- Loss on Sale of Delivery Truck is a loss for the company, and it decreases the stockholder’s equity by $500. Therefore, debit Loss on Sale of Delivery Truck by $500.
- Delivery Truck is an asset, and it is decreased by $24,000. Therefore, credit Delivery Truck account by $24,000.
December 31: Record an adjusting entry for depreciation expense.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $12,500 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $12,500.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $12,500. Therefore, credit Accumulated depreciation – Delivery Truck by $12,500.
Journalize the transactions and adjusting entries for Year 3.
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
Year 3 | ||||
September 1 | Delivery Truck | 58,500 | ||
Cash | 58,500 | |||
(To record the purchase of delivery truck.) | ||||
September 4 | Depreciation Expense-Delivery Truck | 6,250 (5) | ||
Accumulated depreciation-Delivery Truck | 6,250 | |||
(To record the depreciation expense for the delivery truck purchased in Year 2.) | ||||
September 4 | Cash | 36,000 | ||
Accumulated depreciation-Delivery Truck | 18,750 | |||
Gain on sale of Delivery Truck | 4,750 (6) | |||
Delivery Truck | 50,000 | |||
(To record the sale of the delivery truck purchased on Year 2.) | ||||
December 31 | Depreciation Expense-Delivery Truck | 3,900 (7) | ||
Accumulated depreciation-Delivery Truck | 3,900 | |||
(To record the depreciation expense for the new truck of Year 3.) |
Table (3)
Working note 5:
Calculate the Depreciation expense for the delivery truck of Year 2 sold.
Cost of the delivery truck purchased in Year 2 =$50,000
Accumulated Depreciation =
Estimated Useful Life =8 years
Number of months used in Year 3 = 8 months (January 1-August 31)
Working note 6: Calculate the gain or (loss) on the sale of the delivery truck of Year 2.
Cash received on sale =$36,000
Cost of the delivery truck of Year 2 =$50,000
Accumulated Depreciation =
Working note 7: Determine the amount of depreciation expense of the new delivery truck for the year3.
Cost of the new delivery truck= $58,500
Estimated Useful Life =10 years
Number of months used = 4 months (September 1-December 31)
Year 3
September 1: Record the purchase of a new delivery truck.
- Delivery Truck is an asset, and it is increased by $58,500. Therefore, debit Delivery Truck account by $58,500.
- Cash is an asset, and it is decreased by $58,500. Therefore, credit cash with $58,500.
September 4: Record the depreciation expense for the delivery truck of Year 2.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $6,250 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $6,250.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $6,250. Therefore, credit Accumulated depreciation – Delivery Truck by $6,250.
September 4: Record the sale of the delivery truck of Year 2.
- Cash is an asset, and it is increased by $36,000. Therefore, debit cash with $36,000.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The decrease in accumulated depreciation increases the asset by $18,750. Therefore, debit Accumulated depreciation – Delivery Truck by $18,750.
- Gain on Sale of Delivery Truck is a gain for the company, and it decreases the stockholder’s equity by $4,750. Therefore, credit Gain on Sale of Delivery Truck by $4,750.
- Delivery Truck is an asset, and it is decreased by $58,500. Therefore, credit Delivery Truck account by $58,500.
December 31: Record an adjusting entry for depreciation expense for the new delivery tuck of Year 3.
- Depreciation expense-Delivery Truck is an expense and a component of stockholders’ equity. It is increased by $3,900 which reduces the stockholders’ equity. Therefore, debit Depreciation Expense-Delivery Truck account by $3,900.
- Accumulated depreciation-Delivery Truck is a contra-asset with a normal credit balance. The increase in accumulated depreciation decreases the asset by $3,900. Therefore, credit Accumulated depreciation – Delivery Truck by $3,900.
Want to see more full solutions like this?
Chapter 10 Solutions
Financial Accounting
- The following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. Year 1 Jan. 4 Purchased a used delivery truck for $15,360, paying cash. Nov. 2 Paid garage $240 for miscellaneous repairs to the truck. Dec. 31 Recorded depreciation on the truck for the year. The estimated useful life of the truck is 4 years, with a residual value of $3,200 for the truck. Year 2 Jan. 6 Purchased a new truck for $9,000, paying cash. Apr. 1 Sold the used truck purchased on Jan. 4 of Year 1 for $6,270. (Record depreciation to date in Year 2 for the truck.) June 11 Paid garage $260 for miscellaneous repairs to the truck. Dec. 31 Record depreciation for the new truck. It has an estimated residual value of $1,600 and an estimated life of 5 years. Year 3 July 1 Purchased a new truck for $88,000, paying cash. Oct. 2 Sold the truck purchased January 6,…arrow_forwardThe following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. Year 1 Jan. 4. Purchased a used delivery truck for $28,400, paying cash. Nov. 2. Paid garage $710 for miscellaneous repairs to the truck. Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $4,835 for the truck. Year 2 Jan. 6. Purchased a new truck for $46,800, paying cash. Apr. 1. Sold the used truck for $15,145. (Record depreciation to date in Year 2 for the truck.) June 11. Paid garage $465 for miscellaneous repairs to the truck. Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $8,560 and an estimated life of five years. Year 3 July 1. Purchased a new truck for $52,960, paying cash. Oct. 2. Sold the truck…arrow_forwardThe following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. Year 1 Jan. 4. Purchased a used delivery truck for $28,000, paying cash. Nov. 2. Paid garage $675 for miscellaneous repairs to the truck. Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $5,000 for the truck. Year 2 Jan. 6. Purchased a new truck for $48,000, paying cash. Apr. 1. Sold the used truck for $15,000. (Record depreciation to date in Year 2 for the truck.) June 11. Paid garage $450 for miscellaneous repairs to the truck. Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $9,000 and an estimated life of five years. Year 3 July 1. Purchased a new truck for $54,000, paying cash. Oct. 2. Sold the truck…arrow_forward
- The following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The double-declining-balance method of depreciation is used. Year 1 Jan. 4. Purchased a used delivery truck for $28,000, paying cash. Nov. 2. Paid garage $675 for miscellaneous repairs to the truck. Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $5,000 for the truck. Year 2 Jan. 6. Purchased a new truck for $48,000, paying cash. Apr. 1. Sold the used truck for $15,000. (Record depreciation to date in Year 2 for the truck.) June 11. Paid garage $450 for miscellaneous repairs to the truck. Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $9,000 and an estimated life of five years. Year 3 July 1. Purchased a new truck for $54,000, paying cash. Oct. 2. Sold the truck…arrow_forwardThe following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the use of delivery equipment. The doubledeclining-balance method of depreciation is used.Year 1Jan. 4. Purchased a used delivery truck for $28,000, paying cash.Nov. 2. Paid garage $675 for miscellaneous repairs to the truck.Dec. 31. Recorded depreciation on the truck for the year. The estimated useful life of the truck is four years, with a residual value of $5,000 for the truck.Year 2Jan. 6. Purchased a new truck for $48,000, paying cash.Apr. 1. Sold the used truck purchased on Jan. 4 of Year 1 for $15,000. (Record depreciation to date in Year 2 for the truck.)June 11. Paid garage $450 for miscellaneous repairs to the truck.Dec. 31. Record depreciation for the new truck. It has an estimated residual value of $9,000 and an estimated life of five years.Year 3July 1. Purchased a new truck for $54,000, paying cash.Oct. 2. Sold the truck purchased January…arrow_forwardEquipment acquired on January 8 at a cost of $100,870, has an estimated useful life of 12 years, has an estimated residual value of $9,550, and is depreciated by the straight-line method. Assuming that the equipment was sold on April 1 of the fifth year for $61,657, journalize the entries to record (1) depreciation for the three months until the sale date, and (2) the sale of the equipment. I have already determined the book value of the equipment at December 31 the end of the fourth year to be $70,430. $100,870 – $9,550/12 years = $7,610 $100,870 – 30,440 ($7,610 x 4 years) = $70,430 I need help with the journal entry. Thank you.arrow_forward
- On December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $230,200 and has accumulated depreciation of $207,180.00. Depreciation has been recorded up to the end of the year. Which of the following will be included in the entry to record the disposal? Oa. Accumulated Depreciation, debit, $230,200 Ob. Loss on Disposal of Asset, debit, $207,180.00 Oc. Gain on Disposal of Asset, credit, $23,020.00 Od. Equipment, credit, $230,200 Previous Nextarrow_forwardOn December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $209,525 and has accumulated depreciation of $188,572.50. Depreciation has been recorded up to the end of the year. Which of the following will be included in the entry to record the disposal? a.Accumulated Depreciation, debit, $209,525 b.Gain on Disposal of Asset, credit, $20,952.50 c.Loss on Disposal of Asset, debit, $188,572.50 d.Equipment, credit, $209,525arrow_forwardOn December 31, Strike Company has decided to discard one of its batting cages. The equipment had an initial cost of $206,400 and has accumulated depreciation of $185,760. Depreciation has been recorded up to the end of the year. Which of the following will be included in the entry to record the disposal? a.Equipment, credit, $206,400 b.Gain on Disposal of Asset, credit, $20,640 c.Accumulated Depreciation, debit, $206,400 d.Loss on Disposal of Asset, debit, $185,760arrow_forward
- answer in text form please (without image), Note: .Every entry should have narration pleasearrow_forwardRembrandt company acquired a plant asset at the beginning of year one. The asset has an estimated service life of five years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using 1) the straight line method, 2) the sum of the years digits method, and 3)the double declining balance method. Year straight line sum of the years digits double declining balance 1 $9000 $15,000 $20,000 2 $9000 $12,000 $12,000 3 $9000 $9000 $7200 4 $9000 $6000 $4320 5 $9000 $3000 $1480 Total $45,000 $45,000 $45,000 D) which method will produce the highest charge to income in Year 4? e) which method will produce the highest book value for the asset at the end of Year 3? f) If the asset is sold at the end of year 3, which method would heal the highest gain or lowest loss on…arrow_forwardRembrandt company acquired a plant asset at the beginning of year one. The asset has an estimated service life of five years. An employee has prepared depreciation schedules for this asset using three different methods to compare the results of using one method with the results of using other methods. You are to assume that the following schedules have been correctly prepared for this asset using 1) the straight line method, 2) the sum of the years digits method, and 3)the double declining balance method. Year straight line sum of the years digits double declining balance 1 $9000 $15,000 $20,000 2 $9000 $12,000 $12,000 3 $9000 $9000 $7200 4 $9000 $6000 $4320 5 $9000 $3000 $1480 Total $45,000 $45,000 $45,000 a) what is the cost of the asset being depreciated? b) what amount, if any, was used in the depreciation calculations for the salvage value for this asset? c) which method will produce the highest charge to income in Year 1?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning