Question

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

2016

Jan.		1		Paid $286,000 cash plus $11,440 in sales tax and $1,800 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $28,600 salvage value. Loader costs are recorded in the Equipment account.
Jan.		3		Paid $5,000 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 $1,500.
Dec.		31		Recorded annual straight-line depreciation on the loader.

2017

Jan.		1		Paid $4,800 to overhaul the loader’s engine, which increased the loader’s estimated useful life by two years.
Feb.		17		Paid $1,200 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	299,240		=286000+11440+1800
	Cash		299,240
3-Jan-16	Equipment	5,000
	Cash		5,000
31-Dec-16	Depreciation expense—Equipment	68,535		=(299240+5000-28600-1500)/4
	Accumulated depreciation—Equipment		68,535
1-Jan-17	Equipment	4,800
	Cash		4,800
17-Feb-17	Repairs expense—Equipment	1200
	Cash		1,200
31-Dec-17	Depreciation expense—Equipment	42,081		=(299240+5000+4800-28600-1500-68535)/5
	Accumulated depreciation—Equipment		42,081