On July 1, 2003, Philip Ward bought a used pickup truck at a cost of $5,300 for use in his business. On the same day, Ward had the truck painted blue and white (his company s colors) at a cost of $800. Mr. Ward estimates the life of the truck to be three years or 40,000 miles. He further estimates that the truck will have a $450 scrap value at the end of its life, but that it will also cost him $50 to transfer the truck to the junkyard.
1. Record the following journal entries:
a. July 1, 2003: Paid all bills pertaining to the truck. (No previous entries have been recorded concerning these bills.)
b. December 31, 2003: The depreciation expense for the year, using the straight line method.
c. December 31, 2004: The depreciation expense for 2004, again using the straight line method.
d. January 2, 2005: Sold the truck for $2,600 cash.
2. What would the depreciation expense for 2003 have been if the truck had been driven 8,000 miles and the units of production method of depreciation had been used?
3. Interpretive Question: In part 1(d), there is a loss of $650. Why did this loss occur?