Question

Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $11,200. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,700 per year. The paint is starting to fade, so they spend an extra $2,800 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $1,800 is spent on a deluxe roof rack and a trailer hitch. The painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures. They expect to use the Suburban for five years and then sell the vehicle for $4,300.

1. Determine the amount that should be recorded for the new vehicle.

2. Prepare a depreciation schedule using the straight-line method.

year	depreciation expense	Accumulated depreciation	book value
1
2
3
4
5
6
total

3. record the sale of the vehicle two years later on July 1, 2021, for $9,400(journal entry).

Answer 1

1	Amount that should be recorded for the new vehicle	15800	(11200+2800+1800)
	Salvage value	4300
	Depreciation per year	2300	(15800-4300)/5
year	depreciation expense	Accumulated depreciation	book value
1	1150	1150	14650
2	2300	3450	12350
3	2300	5750	10050
4	2300	8050	7750
5	2300	10350	5450
6	1150	11500	4300
total	11500
Date	Account Title and Explanation	Debit	Credit
	Cash	9400
	Accumulated Depreciation - Vehicle	4600
	Loss on sale of vehicle	1800
	Vehile/Machine		15800
	(To record the sale)