The following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period

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 purchased on Jan. 4 of Year 1 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 purchased on July 1. 

It has an estimated residual value of $12,000 and an estimated useful life of eight years.

Instructions

Journalize the transactions and the adjusting entries.

Answer:

 Year 1

 Jan. 4 Delivery Truck28,000

Cash28,000

 Nov. 2 Truck Repair Expense675

Cash675

 Dec. 31 Depreciation Expense—Delivery Truck 14,000

Accum. Depreciation—Delivery Truck 14,000

Delivery truck depreciation

[$28,000 × (100% ÷ 4) × 2].

 Year 2

 Jan. 6 Delivery Truck48,000

Cash48,000

 Apr. 1 Depreciation Expense—Delivery Truck 1,750

Accum. Depreciation—Delivery Truck 1,750

Delivery truck depreciation

[($28,000 – $14,000) × 

(100% ÷ 4) × 2 × (3 ÷ 12)].

1 Accum. Depreciation—Delivery Truck 15,750

Cash15,000

Delivery Truck28,000

Gain on Sale of Delivery Truck2,750

 June 11 Truck Repair Expense450

Cash450

 Dec. 31 Depreciation Expense—Delivery Truck 19,200

Accum. Depreciation—Delivery Truck 19,200

Delivery truck depreciation

[$48,000 × (100% ÷ 5) × 2].

1 Delivery Truck54,000

Cash54,000

2 Depreciation Expense—Delivery Truck 8,640

Accum. Depreciation—Delivery Truck 8,640

Delivery truck depreciation

[($48,000 – $19,200) × 

(100% ÷ 5) × 2 × (9 ÷ 12)].

2 Cash16,750

Accum. Depreciation—Delivery Truck 27,840

Loss on Sale of Delivery Truck 3,410

Delivery Truck48,000

31 Depreciation Expense—Delivery Truck 6,750

Accum. Depreciation—Delivery Truck 6,750

Delivery truck depreciation

[$54,000 × (100% ÷ 8) × 2 × (1 ÷ 2)].

Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance

Equipment was acquired at the beginning of the year at a cost of $600,000. The equipment was depreciated using the double-declining-balance method based on an estimated useful life of 16 years and an estimated residual value of $60,000.

a. What was the depreciation for the first year?

b. Assuming that the equipment was sold at the end of the second year for $480,000, determine the gain or loss on the sale of the equipment.

c. Journalize the entry to record the sale.

Answer:

a. $75,000 = $600,000 × [(100% ÷ 16) × 2)] = $600,000 × 12.5% b. $20,625 gain, computed as follows:  Cost................................................... $600,000 First-year depreciation..................... (75,000) Second-year depreciation.................. (65,625) [($600,000 – $75,000) × 12.5%] Book value at end of second year............ $459,375 Gain on sale ($480,000 – $459,375) = $20,625 c. Cash 480,000 Accumulated Depreciation—Equipment 140,625 Equipment 600,000 Gain on Sale of Equipment 20,625