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, 2025, for $14,400. They expect to use the Suburban for five years and then sell the vehicle for $5,700. The following expenditures related to the vehicle were also made on July 1, 2025:

The company pays $2,400 to GEICO for a one-year insurance policy.
The company spends an extra $5,400 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides.

An additional $2,600 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, 2025, the company pays $1,600 for basic vehicle maintenance related to changing the oil, replacing the windshield wipers, rotating the tires, and inserting a new air filter.
1. Record the expenditures related to the vehicle on July 1, 2025.
2. Record the expenditure related to vehicle maintenance on October 22, 2025.
3. Record the depreciation for vehicle purchased. Use straight-line depreciation.
4. Record the expiration of prepaid insurance.
5. Record the closing entry for revenue accounts.
6. Record the closing entry for expense accounts.

Answer 1

1. Record expenditures on July 1, 2025: purchase of used Suburban, one-year insurance policy, repainting, roof rack, and hitch. 2. Record expenditure on October 22, 2025: basic vehicle maintenance. 3. Calculate depreciation for the vehicle purchased using straight-line method. 4. Note the expiration of prepaid insurance. 5. & 6. More information is needed to provide closing entries for revenue and expense accounts.

Step-by-step explanation:

1. Expenditures related to the vehicle on July 1, 2025:

Purchase of used Suburban: $14,400

One-year insurance policy: $2,400

Repainting and logo placement: $5,400

Deluxe roof rack and trailer hitch: $2,600

2. Expenditure related to vehicle maintenance on October 22, 2025:

Basic vehicle maintenance: $1,600

3. Depreciation for the vehicle purchased:

To calculate straight-line depreciation, we subtract the salvage value from the purchase cost and divide it by the useful life of the vehicle.

Depreciation = (Purchase Cost - Salvage Value) / Useful Life

Depreciation = ($14,400 - $5,700) / 5 years

Depreciation = $2,340 per year

4. Expiration of prepaid insurance:

As the insurance policy was purchased for one year, it will expire on July 1, 2026.

5. Closing entry for revenue accounts:

We need more information on the specific revenue accounts to provide a closing entry.

6. Closing entry for expense accounts:

We need more information on the specific expense accounts to provide a closing entry.