Question

Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.

2016

Jan.		1		Paid $282,000 cash plus $11,280 in sales tax and $1,500 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $28,200 salvage value. Loader costs are recorded in the Equipment account.
Jan.		3		Paid $4,000 to enclose the cab and install air conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,200.
Dec.		31		Recorded annual straight-line depreciation on the loader.

2017

Jan.		1		Paid $4,600 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.		17		Paid $1,150 to repair the loader after the operator backed it into a tree.
Dec.		31		Recorded annual straight-line depreciation on the loader.

Required:

Prepare journal entries to record these transactions and events.

Answer 1

Date	General Journal	Debit	Credit
1-Jan-16	Equipment	294,780		=282000+11280+1500
	Cash		294,780
3-Jan-16	Equipment	4,000
	Cash		4,000
31-Dec-16	Depreciation expense—Equipment	67,345		=(294780+4000-28200-1200)/4
	Accumulated depreciation—Equipment		67,345
1-Jan-17	Equipment	4,600
	Cash		4,600
17-Feb-17	Repairs expense—Equipment	1150
	Cash		1,150
31-Dec-17	Depreciation expense—Equipment	41,327		=(294780+4000+4600-28200-1200-67345)/5
	Accumulated depreciation—Equipment		41,327