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16 March, 16:21

On February 14, Garcia Associates Co. paid $2,300 to repair the transmission on one of its delivery vans. In addition, Garcia paid $450 to install a GPS system in its van.

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  1. 16 March, 16:50
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    (a) To record the repair to the transmission on one of its delivery vans, the resulting journal entry is:

    (Dr) Repairs and Maintenance Expense, $2,300

    (Cr) Cash, $2,300

    The repair of the transmission is an expenditure that returns the vehicle to its previous operating condition. The repair results in an increase to Repairs and Maintenance Expense (an increase to an expense is a debit) and a decrease to Cash (a decrease to an asset is a credit).

    (b) To record the installation of a GPS system in one of its delivery vans, the resulting journal entry is:

    (Dr) Delivery Van, $450

    (Cr) Cash, $450

    The installation of the GPS system is a permanent addition to the van that has increased its capability and should be capitalized. The addition results in an increase to Delivery Van (an increase to an asset is a debit) and a decrease to Cash (a decrease to an asset is a credit).
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