Question

Problem 8-4A Computing and revising depreciation; revenue and capital expenditures LO C1, C2, C3

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


2016

Jan.		1		Paid $287,600 cash plus $11,500 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 $20,600 salvage value. Loader costs are recorded in the Equipment account.
Jan.		3		Paid $4,800 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 $1,400.
Dec.		31		Recorded annual straight-line depreciation on the loader.

2017

Jan.		1		Paid $5,400 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.		17		Paid $820 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	300,600		=287600+11500+1500
	Cash		300,600
3-Jan-16	Equipment	4,800
	Cash		4,800
31-Dec-16	Depreciation expense—Equipment	70,850		=(300600+4800-20600-1400)/4
	Accumulated depreciation—Equipment		70,850
1-Jan-17	Equipment	5,400
	Cash		5,400
17-Feb-17	Repairs expense—Equipment	820
	Cash		820
31-Dec-17	Depreciation expense—Equipment	43,590		=(300600+4800+5400-20600-1400-70850)/5
	Accumulated depreciation—Equipment		43,590