Question

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 purchased January 6, Year 2, for $16,750. (Record depreciation to date for Year 3 for the truck.)
Dec. 31 Recorded depreciation on the remaining truck. It has an estimated residual value of $12,000 and an estimated useful life of eight years.
Journalize the Year 1, 2, and 3 transactions and adjusting entries.

Answer 1

Answer and Explanation:

As per the data given in the question,

The journal entries are shown below:

Year 1

On Jan 4

Delivery truck A/c Dr. $28,000

          To cash Cr. $28,000

(Being the delivery truck is purchased for cash)

On Nov 2

Truck repair expense A/c Dr. $675

         To Cash Cr. $675

(Being the miscellaneous repairs paid)

On Dec 31

Depreciation expense - delivery truck A/c Dr. $14,000   ($28,000 ÷ 4 years × 2)

          To accumulated depreciation Cr. $14,000

(Being the depreciation expense is recorded)

Year 2

On Jan 6

Delivery truck A/c Dr. $48,000

                To cash Cr. $48,000

(Being the delivery truck is purchased for cash)

On April 1

Depreciation expense - delivery truck  A/c Dr. $1,750

        To accumulated depreciation Cr. $1,750

(Being the depreciation expense is recorded)

The computation is shown below:

= $28,000 - $14,000 ÷ 4 years × 2  × 3 months ÷ 12 months

= $1,750

Accumulated depreciation - delivery truck A/c Dr. $15,750  ($14,000 + $1,750)

Cash A/c Dr. $15,000

    To Delivery truck Cr. $28,000

  To Gain on sale of delivery truck Cr. $2,750

($15,750 + $15,000 - $28,000)

(Being the sale is recorded)

On June 11

Truck repair expense A/c Dr. $450

           To Cash Cr. $450

(Being the miscellaneous repairs paid)

On Dec 31

Depreciation expense - delivery truck A/c Dr. $19,200

($48,000 × 2 ÷ 5 years )

To Accumulated depreciation - delivery truck Cr. $19,200

(Being the depreciation expense is recorded)

Year 3

On July 1

Delivery truck A/c Dr. $54,000

         To cash Cr. $54,000

(Being the delivery truck is purchased for cash)

On Oct 2

Depreciation expense - delivery truck  A/c Dr. $8,640

             To accumulated depreciation Cr. $8,640

(Being the depreciation expense is recorded)

The computation is shown below:

= $48,000 - $19,200 ÷ 5 years × 2 × 9 months ÷12 months  

Cash A/c Dr. $16,750

Accumulated depreciation - delivery truck A/c Dr. $27,840

($19,200 + $8,640)

Loss on sale of delivery truck A/c Dr. $3,410

                 To delivery truck Cr. $48,000

(Being the sale is recorded)

On Dec 31

Depreciation expense - delivery truck A/c Dr. $6,750

           To Accumulated depreciation - delivery truck Cr. $6,750

(Being the depreciation expense is recorded)

= $54,000 ÷ 8 years × 2 ÷ 6 months  ÷ 12 months