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Adjustment to depreciation of a truck which was overhauled

A truck was acquired on July 1, 2004 at a cost of $270,000. The truck had a six-year useful life and an estimated salvage value of $30,000. The straight-line method of depreciation was used.

On January 1, 2007, the truck was overhauled at a cost of $25,000, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at $30,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned.

Prepare the appropriate entries for January 1, 2004 and December 31, 2007.

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Debit Credit

7/1/2004 Truck 270,000
Cash 270,000
To record purchase of new truck on 7-1-2004

12/31/2004 Depreciation expense 20,000
Accumulated depreciation 20,000
To record half year of depreciation calculated
at 270,000 - salvage value of ...

Solution Summary

The solution provides the six journal entries to be recorded for the purchase, depreciation, improvement of the truck.