Answer:
Please see the Journal entries of Legacy Furniture Co. during a three year period, below:
Explanation:
(1)
Jan. 4, 2014
Debit: Delivery Truck $28,000
Credit: Cash $28,000
To record purchase of Delivery Truck.
(2)
Nov. 2, 2014
Debit: Miscellaneous Repairs Expense $675
Credit: Cash $675
To record payment of miscellaneous repairs expense.
(3)
Dec. 31, 2014
Debit: Depreciation Expense $14,000
Credit: Accumulated Depreciation $14,000
To Record double-declining depreciation expense.
Depreciation Expense Calculation:
Depreciation Rate = 1 / Estimated Useful Life
Decipherable Rate = 1 / 4
Decipherable Rate = 0.25
or
Decipherable Rate = 25%
Double Declining Decipherable Rate = 2 x 25%
Double Declining Decipherable Rate = 50%
Depreciation Expense = Book Value x Double Declining Decipherable Rate
Depreciation Expense = $28,000 x 50%
Depreciation Expense = $14,000
(4)
Jan. 6, 2015
Debit: Delivery Truck $48,000
Credit: Cash $48,000
To record purchase of new Delivery Truck.
(5)
Apr. 1, 2015
Debit: Cash $15,000
Debit: Accumulated Depreciation $15,750
Credit: Delivery Truck $28,000
Credit: Gain on Sale $2,750
To record Sale of Used Truck.
Apr. 1, 2015
Debit: Depreciation Expense $1,750
Credit: Accumulated Depreciation $1,750
To Record Depreciation Expense of Used Truck.
Accumulated Depreciation & Proceed from Sale Calculation:
Year 1:
Depreciation Expense = $14,000
Year 2 New Book Value = $28,000 - $14,000
Year 2 New Book Value = $14,000
3 Months in Year 2:
Pro Rated Depreciation Expense for Used Truck
= New Book Value x Rate x No. of months used/Total No. of months in year
= $14,000 x 50% x 3/12
= $1,750
Accumulated Depreciation = $14,000 + $1,750
Accumulated Depreciation = $15,750
Net Value of Used Truck = Book Value - Accumulated Depreciation
Net Value of Used Truck = $28,000 - $15,750
Net Value of Used Truck = $12,250
Gain on Sale of Used Truck = Sale Price - Net Value
Gain on Sale of Used Truck = $15,000 - $12,250
Gain on Sale of Used Truck = $2,750
(6)
June 11, 2015
Debit: Miscellaneous Repairs Expense $450
Credit: Cash $450
To record payment of miscellaneous repairs expense.
(7)
Dec. 31, 2015
Debit: Depreciation Expense $19,200
Credit: Accumulated Depreciation $19,200
To Record double-declining depreciation expense.
Depreciation Expense Calculation:
Depreciation Rate = 1 / Estimated Useful Life
Decipherable Rate = 1 / 5
Decipherable Rate = 0.20
or
Decipherable Rate = 20%
DDR = Double Declining Rate = 2 x 20%
DDR = Double Declining Rate = 40%
Depreciation Expense = Decipherable Asset Cost x Decipherable Rate
Depreciation Expense = $48,000 x 40%
Depreciation Expense = $19,200
(8)
July 1,2016
Debit: Delivery Truck $54,000
Credit: Cash $54,000
To record purchase of new Delivery Truck.
(9)
Oct. 2, 2016
Debit: Cash $16,750
Debit: Loss on Sale $3,410
Debit: Accumulated Depreciation $27,840
Credit: Delivery Truck $48,000
To record Sale of New Truck purchased in 2015.
Oct. 2, 2016
Debit: Depreciation Expense $8,640
Credit: Accumulated Depreciation $8,640
To Record Depreciation Expense of New Truck purchased in 2015.
Accumulated Depreciation & Proceed from Sale Calculation:
Year 1:
Depreciation Expense = $19,200
Year 2 New Book Value = $48,000 - $19,200
Year 2 New Book Value = $28,800
9 Months in Year 2:
Pro Rated Depreciation Expense for Used Truck
= New Book Value x DDR x No. of months used / Total No. of months in year
= $28,800 x 40% x 9 / 12
= $8,640
Accumulated Depreciation = $19,200 + $8,640
Accumulated Depreciation = $27,840
Net Value of Used Truck = Book Value - Accumulated Depreciation
Net Value of Used Truck = $48,000 - $27,840
Net Value of Used Truck = $20,160
(Loss) on Sale of Used Truck = Sale Price - Net Value
(Loss) on Sale of Used Truck = $16,750 - $20,160
(Loss) on Sale of Used Truck = ($3,410)
(10)
Dec. 31, 2016
Debit: Depreciation Expense $13,500
Credit: Accumulated Depreciation $13,500
To Record double-declining depreciation expense.
Depreciation Expense Calculation:
Depreciation Rate = 1 / Estimated Useful Life
Decipherable Rate = 1 / 8
Decipherable Rate = 0.125
or
Decipherable Rate = 12.50%
DDR = Double Declining Rate = 2 x 12.50%
DDR = Double Declining Rate = 25%
Depreciation Expense = Book Vale x DDR
Depreciation Expense = $54,000 x 25%
Depreciation Expense = $13,500
New Book Value = $54,000 - $13,500
New Book Value = $40,500
