Question

On January 1, 2023, Land's End Construction purchased a used truck for $56,500. A new motor had to be installed to get the truck in good working order; the costs were $23,000 for the motor and $7,700 for the labour. The truck was also painted for $6,200. It was ready for use by January 4 . A 12-month insurance policy costing $5,500 was purchased to cover the vehicle. The driver filled it with $370 of gas before taking it on its first trip. It is estimated that the truck has a five-year useful life and a residual value of $9,400. Land's End uses the straight-line method to depreciate all of its vehicles.

a. Prepare the entry to record the purchase of truck, insurance, and gas.
b. Record the depreciation at year-end, December 31, 2023.

Answer 1

To record the purchase of the truck, insurance, and gas, a journal entry is made debiting the respective expenses and crediting Accounts Payable. At year-end, the depreciation is recorded by debiting Depreciation Expense and crediting Accumulated Depreciation - Truck using the straight-line method.

Step-by-step explanation:

a. Prepare the entry to record the purchase of truck, insurance, and gas.

To record the purchase of the truck for $56,500, insurance for $5,500, and gas for $370, we will make the following journal entry:

• Truck: Debit $56,500
• Insurance Expense: Debit $5,500
• Gas Expense: Debit $370
• Accounts Payable (to record any remaining amount not paid in cash): Credit $62,370

b. Record the depreciation at year-end, December 31, 2023.

To record the depreciation at year-end using the straight-line method, we need to determine the annual depreciation expense. The truck has a useful life of 5 years and a residual value of $9,400. The depreciable cost is calculated by subtracting the residual value from the purchase cost: $56,500 - $9,400 = $47,100. To record the depreciation expense, we will make the following journal entry:

• Depreciation Expense: Debit $9,420 ($47,100 / 5)
• Accumulated Depreciation - Truck: Credit $9,420