Response to the following problem:
On January 1, 2016, Kencor Trucking Ltd. purchased for $12,000 cash a new truck from a local dealer. Records indicated it should have a tenyear life span but no residual value. During the first week of January, 2020, the truck's engine was rebuilt for $2,400. This is equal to the original engine's cost and is considered material. The new engine increased the residual value of the truck to $1,000. The useful life remained unchanged. New tires were purchased for $800. All expenditures were paid in cash. On April 1, 2021, the truck was completely wrecked. Alpha Insurance Co. has indicated that it will settle the claim for $4,000 in the near future.
Assume the company calculates depreciation expense based on kilometres driven. The estimated total usage was 800,000 kms., including 100,000 in 2021. Actual usage was as follows:
|
2016:
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100,000
|
|
2017:
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120,000
|
|
2018:
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80,000
|
|
2019:
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120,000
|
|
2020:
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150,000
|
|
2021:
|
30,000
|
Required:
Prepare journal entries to record the following entries. State any necessary assumptions.
1. Purchase of the truck.
2. 2019 depreciation expense.
3. 2020 engine rebuild and tire replacement.
4. 2020 depreciation expense.
5. 2021 depreciation expense, write-off of the truck, and receipt of the insurance proceeds.