1. Comet Company purchased a semi-truck on January 1, 2014, at a cost of $80,000
ID: 2560239 • Letter: 1
Question
1. Comet Company purchased a semi-truck on January 1, 2014, at a cost of $80,000. The truck was depreciated using the straight-line method over an estimated 10-year useful life with a salvage value of $8,000. On January 1, 2017, Comet Company spent $10,000 to replace the motor. Comet Company does not know the current book value of the motor, but does expect this improvement to increase the expected useful life of the truck by 5 years.
A. Show the journal entry made by Comet Company on January 1, 2017 to record the expenditure:
B. Show the journal entry made by Comet Company on December 31, 2017 to record depreciation on the truck (Round to the nearest whole dollar):
Explanation / Answer
Solution: Comet Company purchased a semi truck on January 1, 2014, at a cost of $80,000. The truck was depreciated using the straight-line method over an estimated 10-year useful life with a salvage value of $8,000.So, the annual depreciation will be
Deppreciation = cost of machinery - residual value/ useful life
depreciation = $80000 - 8000/ 10
Depreciation = 7200 per year
On January 1, 2017, Comet Company spent $10,000 to replace the motor and expect this improvement to increase the expected useful life of the truck by 5 years.So, the expense done is of capital nature since it is increasing the useful life of asset by 5 years.The book value of truck will be 80000-7200*3 =58400 and the revised book value as on 1 january 2017 will be $68400 ($58400+$10000) and the remaining useful life will be 12 (7 remaining years + 5 increased years)
Now Calulating revised depreciation = 80000+10000-8000-7200*3/12 = $5033
A) the journal entry made by Comet Company on January 1, 2017 to record the expenditure will be :
Semi truck A/c dr. $10000
To Cash/ bank A/c $10000
(Being cash paid for capital expenditure)
B) The journal entry made by Comet Company on December 31, 2017 to record depreciation on the truck will be
Depreciation A/c Dr. 5033
To semi truck A/c 5033
(Being revised depreciation is charged on revised value of asset)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.