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 on July 1, 2022, for $12,000. They expect to use the Suburban for five years and then sell the vehicle for $4,500. The following expenditures related to the vehicle were also made on July 1, 2022:

• The company pays $1,800 to GEICO for a one-year insurance policy.
• The company spends an extra $3,000 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides.
• An additional $2,000 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. In addition, on October 22, 2022, the company pays $400 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter.

What does the income statement and balance sheet look like?

Answer 1

Capitalisation of vehicle:
Purchase	12000
add:Painting	3000
add:Roof rack & hitch	2000
Total Vehicle capitalised	17000
Yearly expenses:
Insurance	1800
Maintenance	400
Depreciation	2500	(17000-4500)/5
Income Statement for year
ended June 30, 2023:
Revenues	0
expenses:
Insurance	1800
Maintenance	400
Depreciation	2500
Total expenses	4700
Net Income	-4700
Balance Sheet as on
June 30, 2023:
Liabilities	Amount $	Assets	Amount $
Current Liabilities:	0	Current Assets:
SH Eq:		Cash	-19200	(-12000-1800-3000-2000-400)
Retained Earnings:		Fixed Assets:
Net Income	-4700	Vehicle	17000
		Less:Accu Depreciation	-2500
Total Liabilities	-4700	Total Assets	-4700