Question

On January 1, 2019, Quick Stop, a convenience store, purchased a new soft-drink cooler. Quick Stop...

On January 1, 2019, Quick Stop, a convenience store, purchased a new soft-drink cooler. Quick Stop paid $15,224 cash for the cooler. Quick Stop also paid $750 to have the cooler shipped to its location. After the new cooler arrived, Quick Stop paid $212 to have the old cooler dismantled and removed. Quick Stop also paid $970 to a contractor to have new wiring and drains installed for the new cooler. Quick Stop estimated that the cooler would have a useful life of 8 years and a residual value of $500. Quick Stop uses the straight-line method of depreciation. The company recorded the cooler as equipment.

Required:

1. Prepare any necessary journal entries to record the cost of the cooler.
2. Prepare the adjusting entry to record 2019 depreciation expense on the new cooler.
3. What is the book value of the cooler at the end of 2019?
4. Conceptual Conncetion: If Quick Stop had used a useful life of 12 years and a residual value of $800, how would this effect depreciation expense for 2019 and the book value of the cooler at the end of 2019? Enter amounts as positive numbers.

Homework Answers

Answer #1

SOLUTION

S.No. Date Accounts title and Explanation Debit ($) Credit ($)
1. Jan.1 2019 Equipment-Cooler 17,156
Cash (15,224+750+212+970) 17,156
(To record the cost of the cooler)
2. Dec.31,2019 Depreciation expense [(17,156-500)/8] 2,082
Accumulated depreciation-Equipment 2,082
(To record depreciation expense)

3. Book value of cooler at the end of 2019 = Cost of cooler - Depreciation expense

= $17,156 - $2,082 = $15,074

4. Depreciation expense for 2019 = (Cost - Salvage value) / Estimated useful life

= ($17,156-800) / 12 = $1,363

Thus, depreciation would decrease by $719 (2,082 - 1,363) per year.

Book value of the cooler at the end of 2019= $17,156 - $1,363 = $15,793

Thus, the book value is increased by $719 ($15,793 - $15,074)

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