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

Question:

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

2015:

Jan. 1 Paid $22,015 cash plus $1,635 in sales tax for a new delivery truck estimated to have a five-year life and a $2,150 salvage value. Delivery truck costs are recorded in the Trucks account.

Dec. 31 Recorded annual straight-line depreciation on the truck.

2016:

Dec. 31 Due to new information obtained earlier in the year, the truck?s estimated useful life was changed from five to four years, and the estimated salvage value was increased to 2,550. Recorded annual straight-line depreciation on the truck

2017:

Dec. 31 Recorded annual straight-line depreciation on the truck.

Dec. 31 Sold the truck for $5,600 cash.

Required:

1. Calculate depreciation for the year 2016.

2. Calculate book value and gain (loss) for sale of the truck in December 2017.

3. Prepare journal entries to record these transactions and events.

Depreciation

Depreciation is the expense associated with the regular use or wear and tear of assets. Common methods of computing depreciation are straight-line, sum of the years, units-of-production and double declining method.

Answer and Explanation:

1. Calculation of depreciation for the year 2016 is as follows:

Cost 22,015
Less: Salvage value 2,150
Depreciable cost 19,865
Divide by: Estimated life 5 years
Annual Depreciation (2015) 3,973

Carrying value on 2016 = Cost - Depreciation

Carrying value on 2016 = 22,015 - 3,973

Carrying value on 2016 = 18,042

Carrying value on 2016 18,042
Less: Revised Salvage value 2,550
Revised Depreciable cost 15,492
Divide by: Revised remaining life (4 years less 1) 3 years
Revised Annual Depreciation, 2016 5,164

2. Calculation of the book value and gain (loss) for sale of the truck in December 2017 is as follows:

Cost: 22,015
Less: Depreciation
Depreciation 2015 3,973
Depreciation 2016 5,164
Depreciation 2017 5,164
Total Depreciation 14,301
Book value, 2017 7,714
Selling price 5,600
Loss on sale 2,114

3. Journal entries to record these transactions and events are as follows:

Account Debit Credit
2015
To record purchase of truck
Trucks 22,015
Sales tax 1,635
Cash 23,650
To record depreciation for 2015
Depreciation expense 3,973
Accumulated depreciation 3,973
2016
To record depreciation for 2016
Depreciation expense 5,164
Accumulated depreciation 5,164
2017
To record depreciation for 2017
Depreciation expense 5,164
Accumulated depreciation 5,164
To record sale of truck
Cash 5,600
Accumulated depreciation 14,301
Loss on sale 2,114
Truck 22,015

Learn more about this topic:

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How to Calculate Depreciation Expense: Definition & Formula

from Financial Accounting: Help and Review

Chapter 5 / Lesson 14
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