Question

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

2016

Jan.		1		Paid $306,000 cash plus $12,240 in sales tax and $1,900 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $30,600 salvage value. Loader costs are recorded in the Equipment account.
Jan.		3		Paid $7,000 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 $2,100.
Dec.		31		Recorded annual straight-line depreciation on the loader.

2017

Jan.		1		Paid $4,300 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.		17		Paid $1,075 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

		DR	CR
Jan 1 2016	Equipment	320140
	Cash		320140
Jan 3 2016	Equipment	7000
	Cash		7000
Dec 31 2016	Depreciation Expense-Equipment	73610
	Accumulated depreciation-Equipment
			73610
Jan 1 2017	Equipment	4300
	Cash		4300
Feb 17 2017	Repair Expense -Equipment	1075
	Cash		1075
Dec 31 2017	Depreciation Expense-Equipment	45026
	Accumulated depreciation-Equipment		45026

.

Equipment Cost Orginal	320140
Additional cost	7000
Total Cost	327140
Less salvage (30600+2100)	32700
Cost to be depreciated	294440
Annual depreciation (294440 / 4 years) (rounded)	73610

Total Cost 327140+4300	331440
Less accumulated depreciation	73610
Book value	257830
Less salvage	32700
Cost to be depreciated	225130
Revised remaining useful life 4-1+2	5
Revised annual depreciation (225130 / 5 yrs)	45026