On January 1, Quick Stop, a convenience store, purchased a new soft-drink cooler. Quick Stop paid $23,000 cash for the cooler. Quick Stop also paid $730 to have the cooler shipped to its location. After the new cooler arrived, Quick Stop paid $2,410 to have the old cooler dismantled and removed. Quick Stop also paid $820 to a contractor to have new wiring and drains installed for the new cooler. Quick Stop estimated that the cooler would have a useful life of 6 years and a residual value of $230. Quick Stop uses the straight-line method of depreciation.

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1. Prepare any necessary journal entries to record the cost of the cooler. If an amount box does not require an entry, leave it blank.

Jan. 1	Accounts PayableAccumulated DepreciationCashDepreciation ExpenseEquipmentEquipment	Equipment	Equipment
	Accounts PayableAccumulated DepreciationCashDepreciation ExpenseEquipmentCash	Cash	Cash

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1. The cost of a fixed asset is any expenditure necessary to acquire the asset and to prepare the asset for use. These expenditures are said to be capitalized, or recorded as an asset.

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2. Prepare the adjusting entry at the end of the year to record depreciation expense on the new cooler. If an amount box does not require an entry, leave it blank.

Dec. 31	Accounts PayableAccumulated DepreciationCashDepreciation ExpenseEquipmentAccumulated Depreciation	Accumulated Depreciation	Accumulated Depreciation
	Accounts PayableAccumulated DepreciationCashDepreciation ExpenseEquipmentDepreciation Expense	Depreciation Expense	Depreciation Expense

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2. Straight-line depreciation allocates the depreciable cost over the useful life of the asset. The journal entry decreases both assets and stockholders' equity.

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3. What is the book value of the cooler after the adjusting entry is made? $fill in the blank f57708f79036fe3_1

4. Conceptual Connection: If Quick Stop had used a useful life of 10 years and a residual value of $1,500, how would this effect depreciation expense and the book value of the cooler at the end of the year?

Depreciation expense	$fill in the blank f57708f79036fe3_2
Book value of the cooler at the end of the year	$fill in the blank f57708f79036fe3_3

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3. Book value = Cost - Accumulated Depreciation. 4. Calculate depreciation based on revised estimates and compare to the previously computed amounts.