Answer:
a). The journal entries required to record the acquisition of the four cars are as follows:
i) credit motor vehicle account with the amount paid to purchase the four cars = $ 36,000
ii) Credit bank account with the the amount paid to purchase the four cars = $ 36,000
b). The journal entries required to record the 1st year's depreciation expense :
i) Debit the motor vehicle expense account with the amount accruing for the periods expense =$ 10,000
.
ii) Credit the accumulated depreciation with the same amount = $ 10,000
.
b) The journal entries required to record the gain on disposal of the motor vehicle is as follows:
i) Debit the Cash account by amount gained = $ 500 .
ii) Debit the Accumulated depreciation account by amount = $ 500 .
iii) Credit the Motor vehicle account by amount = $ 500 .
iv) Credit the Gain on disposal account by amount = $ 500 .
Explanation:
<u>a). Determining the depreciation expense</u>
<u>Step 1
</u>
Get the purchase price for all the four cars using the expression below;
Total purchase price=purchase price per car×number of cars purchased
where;
purchase price per car=$9,000
number of cars purchased=4
replacing;
Total purchase price=(9,000×4)=36,000
Total purchase price=$36,000
<u>Step 2
</u>
Determine the salvage value after the useful life as shown;
Salvage value=selling price per car×number of cars
where;
selling price per car=$1,500
number of cars=4
replacing;
Salvage value=(1,500×4)=6,000
Salvage value=$6,000
<u>Step 3
</u>
Determine the depreciation base as shown;
depreciation base=total purchase price-salvage value
where;
total purchase price=$36,000
salvage value=$6,000
replacing;
depreciation base=(36,000-6,000)=$30,000
annual depreciation cost=depreciation base/useful life
annual depreciation cost=30,000/3
annual depreciation cost=$10,000
The first year's depreciation expense=$10,000
Therefore, expected journal entries are as follows:
i) credit motor vehicle account with the amount paid to purchase the four cars = $ 36,000
ii) Credit bank account with the the amount paid to purchase the four cars = $ 36,000
b). The journal entries required to record the 1st year's depreciation expense :
i) Debit the motor vehicle expense account with the amount accruing for the periods expense =$ 10,000
.
ii) Credit the accumulated depreciation with the same amount = $ 10,000
.
b)<u>. Determining whether car was sold at a loss or gain.</u>
Car book Value = Acquisition cost - Accumulated depreciation
Car book Value = 9,000 - 2,500 = $ 6,500
Loss /Gain = Consideration price( disposal price) - Acquisition cost
Loss /Gain = $7,000 - $6,500 = $ 500
The company realized a gain of = $ 500
Therefore, expected journal entries are as follows:
i) Debit the Cash account by amount gained = $ 500 .
ii) Debit the Accumulated depreciation account by amount = $ 500 .
iii) Credit the Motor vehicle account by amount = $ 500 .
iv) Credit the Gain on disposal account by amount = $ 500 .
