Question

Yoshi Company completed the following transactions and events involving its delivery trucks.

2016

Jan. 1 Paid \(20,515 cash plus \)1,485 in sales tax for a new delivery truck estimated to have a five year life and a \(2,000 salvage value. Delivery truck costs are recorded in the Trucks account.

Dec. 31 Recorded annual straight-line depreciation on the truck.

2017

Dec. 31 Due to new information obtained earlier in the year, the truck’s estimated useful life was changed from five to four years, and the estimated salvage value was increased to \)2,400. Recorded annual straight-line depreciation on the truck.

2018

Dec. 31 Recorded annual straight-line depreciation on the truck.

31 Sold the truck for $5,300 cash.

Required

Prepare journal entries to record these transactions and events

Short answer

There is a loss of $2,300 on the sale of the truck.

Step-by-step solution

Journal entries for 2016

Jan 1	Truck	$22,000
	Cash		$22,000
	Record purchase of truck ($20,515+$1,485)

Dec 31	Depreciation	$4,000
	Accumulated depreciation-truck		$4,000
	Record depreciation

Note:

$$\begin{gathered} \mathit{D}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{=}\frac{\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}\mathbf{-}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{v}\mathbf{a}\mathbf{g}\mathbf{e}}{\mathbf{u}\mathbf{s}\mathbf{e}\mathbf{f}\mathbf{u}\mathbf{l}\mathbf{}\mathbf{l}\mathbf{i}\mathbf{f}\mathbf{e}} \\ Depreciation=\frac{\$22,000-\$2,000}{5} \\ Depreciation=\frac{\$20,000}{5}=\$4,000 \end{gathered}$$

Depreciation for the year 2016 is $4,000.

Journal entries for 2017

Dec 31	Depreciation	$5,200
	Accumulated depreciation-truck		$5,200
	Record depreciation

Note:

$\begin{array}{rcl}\mathit{d}\mathit{e}\mathit{p}\mathit{r}\mathit{e}\mathit{c}\mathit{i}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}& \mathbf{=}& \frac{\mathbf{b}\mathbf{e}\mathbf{g}\mathbf{i}\mathbf{n}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{}\mathbf{b}\mathbf{o}\mathbf{o}\mathbf{k}\mathbf{}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{-}\mathbf{r}\mathbf{e}\mathbf{v}\mathbf{i}\mathbf{s}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{v}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}}{\mathbf{r}\mathbf{e}\mathbf{m}\mathbf{a}\mathbf{i}\mathbf{n}\mathbf{i}\mathbf{n}\mathbf{g}\mathbf{}\mathbf{r}\mathbf{e}\mathbf{v}\mathbf{i}\mathbf{s}\mathbf{e}\mathbf{d}\mathbf{}\mathbf{u}\mathbf{s}\mathbf{e}\mathbf{f}\mathbf{u}\mathbf{l}\mathbf{}\mathbf{l}\mathbf{i}\mathbf{f}\mathbf{e}}\\ Depreciation& =& \frac{\left[\left(\$22,000-\$4,000\right)-\$2,400\right]}{3}\\ Depreciation& =& \frac{\$15,600}{3}=\$5,200\end{array}$

Depreciation for the year 2017 is $5,200.

Journal entries for 2018

Dec 31	Depreciation	$5,200
	Accumulated depreciation-truck		$5,200
	Record depreciation

Dec 31	Cash	$5,300
	Loss in the sale	$2,300
	Accumulated depreciation- truck ($4,000+$5,200+$5,200)	$14,400
	Truck		$22,000
	Record for sale of truck

Note:

$\begin{array}{rcl}bookvalue\left(2016\right)& =& \$22,000=\$4,000=\$18,000\\ bookvalue\left(2017\right)& =& \$18,000-\$5,200=\$12,800\\ bookvalue\left(2018\right)& =& \$12,800-\$5,200=\$7,600\\ \mathit{p}\mathit{r}\mathit{o}\mathit{f}\mathit{i}\mathit{t}\mathbf{}\mathit{o}\mathit{r}\mathbf{}\mathit{l}\mathit{o}\mathit{s}\mathit{s}\mathbf{}\mathit{i}\mathit{n}\mathbf{}\mathit{t}\mathit{h}\mathit{e}\mathbf{}\mathit{s}\mathit{a}\mathit{l}\mathit{e}& \mathbf{=}& \mathit{b}\mathit{o}\mathit{o}\mathit{k}\mathbf{}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{-}\mathit{s}\mathit{e}\mathit{l}\mathit{l}\mathit{i}\mathit{n}\mathit{g}\mathbf{}\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\\ \$7,600-\$5,300& =& \$2,300\left(loss\right)\end{array}$

There is a loss of $2,300 on the sale of the truck.