On July 1, 2012, 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. 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.

Required:

1. Record the following journal entries:

a. July 1, 2012: Paid all bills pertaining to the truck. (No previous entries have been recorded concerning these bills.)

b. December 31, 2012: Recorded depreciation expense for the year, using the straight-line method.

c. December 31, 2013: Recorded depreciation expense for 2013, again using the straight-line method.

d. January 2, 2014: Sold the truck for $2,600 cash.

2. What would the depreciation expense for 2012 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 (ld), there is a loss of $650. Why did this loss occur?