Answer:
Great Adventures
Journal Entries on July 1, 2022:
Debit Equipment Account with $12,000
Credit Cash Account with $12,000
To record the purchase of a used Suburban.
Debit Vehicle Insurance with $1,800
Credit Cash Account with $1,800
To record payment of one year vehicle insurance.
Debit Equipment Account with $3,000
Credit Cash Account with $3,000
To record the payment for repainting and placing logo.
Debit Equipment Account with $2,000
Credit Cash Account with $2,000
To record deluxe roof rack and trailer hitch on the vehicle.
Maintenance on October 22:
No Journal Entry Required in July.
Explanation:
a) The initial amount spent to purchase the vehicle is capitalized, i.e. recognized in the asset's account (Equipment Account).
b) Vehicle insurance is not capitalized. It is a period cost that should be recognized in the income statement.
c) Repainting and putting logo on the vehicle is capitalized because it adds to the value and brings the vehicle to its use. All expenditure that helps to bring an asset to its use and increases the future value is capitalized.
d) The deluxe roof rack and trailer hitch is also capitalized since they increase the future benefits of the vehicle.
