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Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business.
Champion Contractors completed the following transactions and events involving the purchase and operation of equipment in its business. 2017
Jan. 1 Paid $287,600 cash plus $11,500 in sales tax and $1,500 in transportation (FOB shipping point) for a new loader. The loader is estimated to have a four-year life and a $20,600 salvage value. Loader costs are recorded in the Equipment account.
Jan. 3 Paid $4,800 to enclose the cab and install air-conditioning in the loader to enable operations under harsher conditions. This increased the estimated salvage value of the loader by another $1,400.
Dec. 31 Recorded annual straight-line depreciation on the loader.
2018:
Jan. 1 Paid $5,400 to overhaul the loader's engine, which increased the loader's estimated useful life by two years.
Feb. 17 Paid $820 to repair the loader after the operator backed it into a tree.
Dec. 31 Recorded annual straight-line depreciation on the loader.
Required:
Prepare journal entries to record these transactions and events.
Answer and Explanation:The Journal entries are shown below:-Jan 1Equipment Dr, $300,600 ($287,600 + $11,500 + $1,500)To Cash $300,600(Being equipment is recorded)Jan 3Equipment Dr, $4,800To Cash $4,800(Being equipment is recorded)Dec 31Depreciation expenses-equipment Dr, $70,850($300,600 + $4,800 - $20,600 - $1,400) ÷ 4To Accumulated depreciation-equiment $70,850(Being depreciation expense is recorded)Year 2018Jan 1Equiment Dr, $5,400To Cash $5,400(Being equipment is recorded)Feb 17Repair expenses Dr, $820To Cash $820(Being repair expense is recorded)Dec 31Depreciation expenses-equipment Dr, $43,590To Accumulated depreciation-equiment $43,590(Being depreciation expense is recorded)For Computing the Depreciation year 2018Particulars AmountJan 1 2017 Cost of loader ($287,600 + $11,500 + $1,500) $300,600Add cost of air conditioning installation onJan 3 2017 $4,800Book value of depreciation for year 2017 $305,400Less: Depriciation of year 2017($305,400 - $20,600 - $1,400) ÷ 4 $70,850After depreciation the book value for year 2017 $234,550Add: Cost to overhaul the loader's engine $5,400Before depreciation the book value of 2018 $239,950Depreciation of year 2018($239,950 - $22,000) ÷ (4 - 2 + 1) $43,590...