Question

A depreciation schedule for semi-trucks of Metlock Manufacturing Company was requested by your auditor soon after December 31, 2021, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2018 to 2021, inclusive. The following data were ascertained.

Balance of Trucks account, Jan. 1, 2018
Truck No. 1 purchased Jan. 1, 2015, cost		$19,800
Truck No. 2 purchased July 1, 2015, cost		24,200
Truck No. 3 purchased Jan. 1, 2017, cost		33,000
Truck No. 4 purchased July 1, 2017, cost		26,400
Balance, Jan. 1, 2015		$103,400

The Accumulated Depreciation-Trucks account previously adjusted to January 1, 2018, and entered in the ledger, had a balance on that date of $33,220 (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, 2018.

Transactions between January 1, 2018, and December 31, 2021, which were recorded in the ledger, are as follows.

July 1, 2018		Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of which was $44,000. Metlock. paid the automobile dealer $24,200 cash on the transaction. The entry was a debit to Trucks and a credit to Cash, $24,200. The transaction has commercial substance.
Jan. 1, 2019		Truck No. 1 was sold for $3,850 cash; entry debited Cash and credited Trucks, $3,850.
July 1, 2020		A new truck (No. 6) was acquired for $46,200 cash and was charged at that amount to the Trucks account. (Assume truck No. 2 was not retired.)
July 1, 2020		Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for $770 cash. Metlock received $2,750 from the insurance company. The entry made by the bookkeeper was a debit to Cash, $3,520, and credits to Miscellaneous Income, $770, and Trucks, $2,750.

Entries for straight-line depreciation had been made at the close of each year as follows: 2018, $23,100; 2019, $24,750; 2020, $27,555; 2021, $33,440.

(a)

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. (Enter credit, understated and decrease amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

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)

1/1/18

Balance

$

$

$

$

$

$

$

7/1/18

Purchase Truck #5

Trade Truck #3

12/31/18

Depreciation

12/31/18

Balances

1/1/19

Sale of Truck #1

12/31/19

Depreciation

12/31/19

Balances

7/1/20

Purchase of Truck #6

7/1/20

Disposal of Truck #4

12/31/20

Depreciation

12/31/20

Balances

12/31/21

Depreciation

12/31/21

Balance

$

$

$

$

$

$

$

Answer 1

Solution 0 Given that Balance of Truck account, Jan 1, 2018 Truck No. I purchased Jan 1, 2015, cost 19 800 24,200 Truck No.2 purchased July 1, 2015, cost Truck NO. 3 purchased jan 1, 2015, cost 33,000 Truck No.4 purchased july 1, 2017, cost 26,400 Balance Jan 1, 2015 103,400 December 31,2011 :. The transaction between Jan 1, 2018 and which are recorded given information. 1 July 2018 Touck no 3 purchased on jan 1,2007 for $39,000 life period 5 years. Salvage value per year depreciation - Cost llifepericed - 38000 6600 Book value of theet truck on 1 July 2018 33000 Cost Depreciation from Jan 1, 2007 to July 1 2018 for 15 year. (6600 + 6600) 9900 Book value of that truck on 1 July 2018 23,100

ljuly2018 Exchanged the same with another truck valued at $ 40,000 But Exchanged and paid 24,200 this is valued as "19800 as on 1 July 2008 23,100. Book value of that truck on July 2048 exchange value 44,000 -24,900 19800 loss on sale of the trek. 3,300 Statement This loss will be debited in income So the net income will seduce. 1-20 2019 value of truck on igaly 2015 24,200 Depreciation from Jan 2015 tol Jan 2019 4 years at 5 years = 244 200 year = 34206 = 4840. per year. ... 4 years. (4840x4) Book value as on the date of sale. sale price of truck. 19360 4840 3.850 550 Loss on sale of the truck here the net income will be decreased, as we will debit the loss on sale to the truck account

1-Jul-2000 Truck no.6. was acquired for 46,200 This purchase of truck will not give any effect to net income of that year as purchase of asset is a fixed asset. truck No.4 was damaged 6 sold for 770 Cash 26400 Touck nou was purchard on Depreciation from for three years 26400 July 1, 201760 1 July 2020 at. 5280. per year 15840 3x 5280 Book value as on the date of Sales 10560 26400 15840 this was sold for 770 9790 insurance Claim 2,750 decrease in net income. 7040