Group and Composite
Cheadle actually retired the trucks according to the following schedule (assume each truck was retired at the beginning of the year):
Required:
- 1. Prepare the
journal entries necessary to record the preceding events. - 2. Assume that the company expected all the trucks to last 4 years and be retired for $1,600 each. Using group depreciation, prepare journal entries for all 6 years, assuming the company retired the trucks as shown by the latter schedule.
1.
Prepare the necessary journal entries to record the given transactions.
Explanation of Solution
Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.
Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.
Prepare the necessary journal entries to record the given transactions as follows:
Date | Account Title & Explanation | Debit ($) | Credit($) |
January 2, 2019 | Trucks (1) | 160,000 | |
Cash | 160,000 | ||
(To record the purchase of trucks for cash) | |||
December 31, 2019 | Depreciation expense (2) | 30,400 | |
Accumulated depreciation-Trucks | 30,400 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2020 | Cash | 4,000 | |
Accumulated depreciation-Trucks | 4,000 | ||
Trucks | 8,000 | ||
(To record the retirement of trucks ( truck retired at 2020)) | |||
December 31, 2020 | Depreciation expense (4) | 28,880 | |
Accumulated depreciation-Trucks | 28,880 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2021 | Cash | 11,000 | |
Accumulated depreciation-Trucks | 13,000 | ||
Trucks | 24,000 | ||
(To record the retirement of trucks (3 trucks retired at 2021)) | |||
December 31, 2021 | Depreciation expense (4) | 24,320 | |
Accumulated depreciation-Trucks | 24,320 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2022 | Cash | 19,000 | |
Accumulated depreciation-Trucks | 29,000 | ||
Trucks | 48,000 | ||
(To record the retirement of trucks (6 trucks retired at 2022)) | |||
December 31, 2022 | Depreciation expense (4) | 15,200 | |
Accumulated depreciation-Trucks | 15,200 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2023 | Cash | 6,000 | |
Accumulated depreciation-Trucks | 34,000 | ||
Trucks | 40,000 | ||
(To record the retirement of trucks (5 trucks retired at 2023)) | |||
December 31, 2023 | Depreciation expense (4) | 7,600 | |
Accumulated depreciation-Trucks | 7,600 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2024 | Cash | 4,000 | |
Accumulated depreciation-Trucks | 20,000 | ||
Trucks | 24,000 | ||
(To record the retirement of trucks (3 trucks retired at 2024)) | |||
December 31, 2024 | Depreciation expense (4) | 3,040 | |
Accumulated depreciation-Trucks | 3,040 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2025 | Cash | 1,000 | |
Accumulated depreciation-Trucks | 15,000 | ||
Trucks | 16,000 | ||
(To record the retirement of trucks (2 trucks retired at 2025)) | |||
December 31, 2025 | Loss on disposal of property, plant and equipment (6) | 5,560 | |
Accumulated depreciation-Trucks | 5,560 | ||
(To record the loss on disposal of property, plant and equipment) |
Table (1)
Working note (1):
Calculate the total cost of trucks.
Working note (2):
Figure (1)
Working note (3):
Calculate the depreciation rate.
Working note (4):
Calculate the depreciation expense after retirement of truck for each year.
Figure (2)
Working note (5):
Calculate the total accumulated depreciation incurred at the time of retirement of truck and total depreciation expense after retirement of truck.
Year | Accumulated depreciation incurred at the time of retirement of truck ($) | Depreciation expense for each year ($) |
2019 | $0 | $30,400 (2) |
2020 | $4,000 | $28,880 (4) |
2021 | $13,000 | $24,320 (4) |
2021 | $29,000 | $15,200 (4) |
2023 | $34,000 | $7,600 (4) |
2024 | $20,000 | $3,040 (4) |
2025 | $15,000 | $0 |
Total depreciation | $115,000 | $109,440 |
Table (2)
Working note (6):
Calculate the loss on disposal of property, plant and equipment.
2.
Prepare necessary journal entries for all 6 years, if trucks are retired at $1,600 each.
Explanation of Solution
Prepare necessary journal entries for all 6 years, if trucks are retired at $1,600 each as follows:
Date | Account Title & Explanation | Debit ($) | Credit($) |
January 2, 2019 | Trucks (1) | 1,60,000 | |
Cash | 1,60,000 | ||
(To record the purchase of trucks for cash) | |||
December 31, 2019 | Depreciation expense (7) | 32,000 | |
Accumulated depreciation-Trucks | 32,000 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2020 | Cash | 4,000 | |
Accumulated depreciation-Trucks | 4,000 | ||
Trucks | 8,000 | ||
(To record the retirement of trucks ( truck retired at 2020)) | |||
December 31, 2020 | Depreciation expense (8) | 30,400 | |
Accumulated depreciation-Trucks | 30,400 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2021 | Cash | 11,000 | |
Accumulated depreciation-Trucks | 13,000 | ||
Trucks | 24,000 | ||
(To record the retirement of trucks (3 trucks retired at 2021)) | |||
December 31, 2021 | Depreciation expense (8) | 25,600 | |
Accumulated depreciation-Trucks | 25,600 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2022 | Cash | 19,000 | |
Accumulated depreciation-Trucks | 29,000 | ||
Trucks | 48,000 | ||
(To record the retirement of trucks (6 trucks retired at 2022)) | |||
December 31, 2022 | Depreciation expense (8) | 16,000 | |
Accumulated depreciation-Trucks | 16,000 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2023 | Cash | 6,000 | |
Accumulated depreciation-Trucks | 34,000 | ||
Trucks | 40,000 | ||
(To record the retirement of trucks (5 trucks retired at 2023)) | |||
December 31, 2023 | Depreciation expense (8) | 8,000 | |
Accumulated depreciation-Trucks | 8,000 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2024 | Cash | 4,000 | |
Accumulated depreciation-Trucks | 20,000 | ||
Trucks | 24,000 | ||
(To record the retirement of trucks (3 trucks retired at 2024)) | |||
December 31, 2024 | Depreciation expense (8) | 800 | |
Accumulated depreciation-Trucks | 800 | ||
(To record the depreciation expense incurred at the end of the accounting year) | |||
January 1, 2025 | Cash | 1,000 | |
Accumulated depreciation-Trucks | 15,000 | ||
Trucks | 16,000 | ||
(To record the retirement of trucks (2 trucks retired at 2025)) | |||
December 31, 2025 | Loss on disposal of property, plant and equipment (11) | 2,200 | |
Accumulated depreciation-Trucks | 2,200 | ||
(To record the loss on disposal of property, plant and equipment) |
Table (3)
Working note (7):
Calculate the group depreciation cost under straight line method:
Working note (8):
Calculate the depreciation rate.
Working note (9):
Calculate the depreciation expense after retirement of truck for each year.
Figure (3)
Note: Depreciation expense after retirement for the year 2024 is $800, because the amount of $3,200 would reduce the book value of remaining two trucks (2 trucks) in the year 2025. Hence, the depreciation expense for 2024 is 800
Working note (10):
Calculate the total accumulated depreciation incurred at the time of retirement of truck and total depreciation expense after retirement of truck.
Year | Accumulated depreciation incurred at the time of retirement of truck ($) | Depreciation expense for each year ($) |
2019 | $0 | $32,000 (7) |
2020 | $4,000 | $30,400 (9) |
2021 | $13,000 | $25,600 (9) |
2021 | $29,000 | $16,000 (9) |
2023 | $34,000 | $8,000 (9) |
2024 | $20,000 | $800 (9) |
2025 | $15,000 | $0 |
Total depreciation | $115,000 | $112,800 |
Table (4)
Working note (11):
Calculate the loss on disposal of property, plant and equipment.
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Chapter 11 Solutions
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