Question

Steve's Outdoor Company purchased a new delivery van on January 1 for $47,000 plus $4,000 in sales tax. The company paid $13,000 cash on the van (including the sales tax), with the $38,000 balance on credit at 8 percent interest due in nine months (on September 30). On January 2, the company paid cash of $900 to have the company name and logo painted on the van. On September 30, the company paid the balance due on the van plus the interest. On December 31 (the end of the accounting period), Steve's Outdoor recorded depreciation on the van using the straight-line method with an estimated useful life of 5 years and an estimated residual value of $4,700.

Answer 1

Answer:

Steve's Outdoor Company purchased a new delivery van on January 1 for $47,000 plus $4,000 in sales tax. The company paid $13,000 cash on the van (including the sales tax), with the $38,000 balance on credit at 8 percent interest due in nine months (on September 30).

January 1, 202x, delivery van purchased

Dr Vehicles 51,000

    Cr Cash 13,000

    Cr Notes payable 38,000

The sales tax increases the asset's historical cost

On January 2, the company paid cash of $900 to have the company name and logo painted on the van.

January 2, 202x, company's logo was painted on the delivery van

Dr Vehicles 900

    Cr Cash 900

On September 30, the company paid the balance due on the van plus the interest.

September 30, 202x, notes payable cancelled

Dr Notes payable 38,000

Dr Interest expense 2,280

    Cr Cash 40,280

On December 31 (the end of the accounting period), Steve's Outdoor recorded depreciation on the van using the straight-line method with an estimated useful life of 5 years and an estimated residual value of $4,700.

December 31, 202x, depreciation expense

Dr Depreciation expense 9,400

    Cr Accumulated depreciation, vehicles 9,400

Depreciable value = $51,700 - $4,700 = $47,000

Depreciation expense per year = $47,000 / 5 = $9,400