Trusty Truck Company is a large trucking company. The company uses the units-of-production (UOP) method to depreciate its trucks. To follow are facts about one Mack truck in the company's fleet. 'Click the icon to view the facts.) Read the Requirement 1. Determine Trusty's gain or loss on the transaction. Begin by determining the formula needed to calculate the gain or loss and then complete the calculation to determine the amount. (Use a minus sign or parentheses for a loss. Round depreciation per unit to the nearest cent.) Requirement 2. Prepare the journal entry to record the trade-in of the old truck on the new one. Use two decimal places for depreciation cost per mile. (Record debits first, then credits. Explanations are not required.) Requirements. More info When this truck was acquired in 2021, the tractor-trailer rig had cost $460,000 and was expected to remain in service for 10 years or 1,000,000 miles. Its estimated 1. Determine Trusty's gain or loss on the transaction. residual value was $30,000. During 2021 , the truck was driven 85,000 miles; 2. Prepare the journal entry to record the trade-in of the old truck for the new during 2022, 145,000 miles; and during 2023, 170,000 miles. After the truck was one. Use two decimal places for depreciation cost per mile. driven 40,000 miles in 2024, the company traded in the Mack truck for a Freightliner truck with fair market value of $210,000. In addition to the trade-in of the Mack truck, Trusty Truck Company paid cash of $27,000 for the Freightliner truck.
1. To calculate the gain or loss on the transaction, we need to determine the book value of the Mack truck at the time of the trade-in.
Book value = Cost - Accumulated Depreciation
The Mack truck was acquired in 2021 for $460,000 and had a residual value of $30,000. Using the units-of-production (UOP) method, we can calculate the depreciation per mile.
Depreciation per mile = (Cost - Residual Value) / Total estimated miles
Depreciation per mile = ($460,000 - $30,000) / 1,000,000 = $0.43/mile
Now, let's calculate the total accumulated depreciation for the years 2021-2024 based on the miles driven.
2021: 85,000 miles * $0.43/mile = $36,550
2022: 145,000 miles * $0.43/mile = $62,350
2023: 170,000 miles * $0.43/mile = $73,100
2024: 40,000 miles * $0.43/mile = $17,200
Total accumulated depreciation = $36,550 + $62,350 + $73,100 + $17,200 = $189,200
Book value at the time of trade-in = Cost - Accumulated Depreciation
Book value = $460,000 - $189,200 = $270,800
The gain or loss on the transaction is the difference between the fair market value of the new truck and the book value of the old truck.
Gain or loss = Fair Market Value - Book Value
Gain or loss = $210,000 - $270,800 = ($60,800) (loss)
Therefore, Trusty Truck Company incurred a loss of $60,800 on the transaction.
2. Journal entry to record the trade-in of the old truck for the new one:
- Debit: Truck (new) $210,000
- Credit: Truck (old) $460,000
- Credit: Accumulated Depreciation $189,200
- Credit: Cash $27,000 (for the additional cash paid for the new truck)
To determine Trusty's gain or loss on the transaction, we need to calculate the accumulated depreciation on the Mack truck and compare it with the fair market value of the truck at the time of the trade-in.
First, let's calculate the depreciation per mile:
Depreciation per mile = (Cost - Residual value) / Total estimated miles
Total estimated miles = 1,000,000 miles
Depreciation per mile = ($460,000 - $30,000) / 1,000,000 miles
Depreciation per mile ≈ $0.43
Now, let's calculate the accumulated depreciation on the Mack truck for the miles driven before the trade-in:
Accumulated depreciation = Depreciation per mile * Total miles driven
Total miles driven = 85,000 miles + 145,000 miles + 170,000 miles + 40,000 miles
Total miles driven = 440,000 miles
Accumulated depreciation = $0.43/mile * 440,000 miles
Accumulated depreciation = $189,200
Next, let's calculate the gain or loss on the transaction:
Gain or loss = Fair market value of new truck - Accumulated depreciation
Fair market value of new truck = $210,000
Gain or loss = $210,000 - $189,200
Gain or loss ≈ $20,800
Therefore, Trusty Truck Company has a gain of approximately $20,800 on the transaction.
Now let's prepare the journal entry to record the trade-in of the old truck for the new one:
Debit: Freightliner Truck - $210,000
Debit: Accumulated Depreciation - $189,200
Credit: Truck (Mack) - $460,000
Credit: Cash - $27,000
Note: The specific accounts used may vary depending on the company's chart of accounts. Please consult with the company's accounting policies for accurate journal entries.