A depreciation schedule for semi-trucks of Martinez Manufacturing Company was re
ID: 2610426 • Letter: A
Question
A depreciation schedule for semi-trucks of Martinez Manufacturing Company was requested by your auditor soon after December 31, 2018, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2015 to 2018, inclusive. The following data were ascertained.
The Accumulated Depreciation-Trucks account previously adjusted to January 1, 2015, and entered in the ledger, had a balance on that date of $36,240 (depreciation on the four trucks from the respective dates of purchase, based on a 5-year life, no salvage value). No charges had been made against the account before January 1, 2015.
Transactions between January 1, 2015, and December 31, 2018, which were recorded in the ledger, are as follows.
Entries for straight-line depreciation had been made at the close of each year as follows: 2015, $25,200; 2016, $27,000; 2017, $30,060; 2018, $36,480.
For each of the 4 years, compute separately the increase or decrease in net income arising from the company’s errors in determining or entering depreciation or in recording transactions affecting trucks, ignoring income tax considerations.
Per Company Books
As Adjusted
Net
Trucks dr. (cr.)
Acc. Dep. Trucks dr. (cr.)
Retained Earnings dr. (cr.)
Trucks dr. (cr.)
Acc. Dep., Trucks dr, (cr.)
Retained Earnings dr, (cr.)
Income Overstated (Understated)
1/1/15 Balance
7/1/15 Purchase Truck #5
Trade Truck #3
12/31/15 Depreciation
12/31/15 Balances
1/1/16 Sale of Truck #1
12/31/16 Depreciation
12/31/16 Balances
7/1/17 Purchase of Truck #6
7/1/17 Disposal of Truck #4
12/31/17 Depreciation
12/31/17 Balances
12/31/18 Depreciation
12/31/18 Balance
Prepare one compound journal entry as of December 31, 2018, for adjustment of the Trucks account to reflect the correct balances as revealed by your schedule, assuming that the books have not been closed for 2018. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
Balance of Trucks account, Jan. 1, 2015 Truck No. 1 purchased Jan. 1, 2012, cost $21,600 Truck No. 2 purchased July 1, 2012, cost 26,400 Truck No. 3 purchased Jan. 1, 2014, cost 36,000 Truck No. 4 purchased July 1, 2014, cost 28,800 Balance, Jan. 1, 2015 $112,800Explanation / Answer
Journal Entries For the Year 2015 Debit Credit Accumulated Depreciation 1,440.00 Income Statement 1,440.00 (The difference between the charged amount of 25,200 for the year 2015 and correct amount of 23,760) Income Statement (Loss on disposal) 3,600.00 Asset 3,600.00 (The loss on exchange of Truck 03 to Truck 05) Journal Entries For the Year 2016 Debit Credit Accumulated Depreciation 6,360.00 Income Statement 6,360.00 (The difference between the charged amount of 27,000 for the year 2016 and correct amount of 20,640) Income Statement (Loss on disposal) 4,440.00 Asset 4,440.00 (The loss on sale of Truck 01) Journal Entries For the Year 2017 Debit Credit Accumulated Depreciation 9,900.00 Income Statement 9,900.00 (The difference between the charged amount of 30,060 for the year 2017 and correct amount of 20,160) Income Statement (Loss on disposal) 7680 Asset 7,680.00 Loss on disposal Msicellaneous Income 3840 Asset 3,840.00 Correction of JV posted Journal Entries For the Year 2018 Debit Credit Accumulated Depreciation 16,800.00 Income Statement 16,800.00 (The difference between the charged amount of 36,480 for the year 2017 and correct amount of 19,680) Working Depreciation for 2015 Cost Depreciable Days for 2015 Truck 1 01/01/2012 21,600.00 Full Year 4,320.00 Truck 2 01/07/2012 26,400.00 Full Year 5,280.00 Truck 3 01/01/2014 36,000.00 Half Year 3,600.00 Truck 4 01/07/2014 28,800.00 Full Year 5,760.00 Truck 5 01/07/2015 48,000.00 Half Year 4,800.00 Total 23,760.00 Profit OR Loss on Asset Exchange of Trucks Cost Acc.Depreciation (01.01.2014-01.07.2015) Amount Net Book Value of Truck 03 36,000.00 10,800.00 25,200.00 Cost of Truck 05 Cash Paid Amount Transfer Value with Truck 05 48,000.00 26,400.00 21,600.00 Therefore Profit/(Loss) (3,600.00) Depreciation for 2016 Cost Depreciable Days for 2016 Truck 2 01/07/2012 26,400.00 Full Year 5,280.00 Truck 4 01/07/2014 28,800.00 Full Year 5,760.00 Truck 5 01/07/2015 48,000.00 Half Year 9,600.00 Total 20,640.00 Profit OR Loss on Asset Sale Cost Acc.Depreciation (01.01.2012-31.12.2015) Amount Net Book Value of Truck 01 21,600.00 12,960.00 8,640.00 Cash Received 4,200.00 Therefore Profit/(Loss) (4,440.00) Depreciation for 2017 Cost Depreciable Days for 2016 Truck 2 01/07/2012 26,400.00 Half Year 2,640.00 Truck 4 01/07/2014 28,800.00 Half Year 2,880.00 Truck 5 01/07/2015 48,000.00 Full Year 9,600.00 Truck 6 01/07/2017 50,400.00 Half Year 5,040.00 Total 20,160.00 Profit OR Loss on Asset Sale Cost Acc.Depreciation (01.07.2014-01.07.2017) Amount Net Book Value of Truck 04 28,800.00 17,280.00 11,520.00 Cash Received 840.00 Insurance Calimed 3,000.00 Therefore Profit/(Loss) (7,680.00) Depreciation for 2018 Cost Depreciable Days for 2016 Truck 5 01/07/2015 48,000.00 Full Year 9,600.00 Truck 6 01/07/2017 50,400.00 Full Year 10,080.00 Total 19,680.00
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