Question

A truck was acquired on July 1, 2014, at a cost of $172,000. The truck had a six-year useful life and an estimated salvage value of $28,000. The straight-line method of depreciation was used. On January 1, 2017, the truck was overhauled at a cost of $25,000, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at $28,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned.

Prepare the appropriate entries for January 1, 2017 and December 31, 2017.

Answer 1

Solution:

Appropriate entries for January 1, 2017 and December 31, 2017.

Date	Particulars	Debit($)	Credit($)
2017, Jan 1	Depreciation accumulated A/c Dr	$25,000
	To cash A/c		$25,000
2017, Dec 31	Expense for depreciation A/c Dr ($109,000/5.5)	$19,818
	To Depreciation accumulated A/c		$19,818

Working note:

Details	Amount($)
Cost	$172,000
Less: Salvage value	($28,000)
Depreciation base july 1, 2014	$144,000
Less: Depreciation to date ($144,000 /6)*2.5	($60,000)
Depreciation base Jan 1, 2017 (unadjusted)	$84,000
Overhaul	$25,000
Depreciation base Jan 1, 2017 (adjusted)	$109,000