Question: Soon after December 31 2010 the auditor requested a depreciation

Soon after December 31, 2010 the auditor requested a depreciation schedule for trucks of the Jarrett Trucking Company, showing the additions, retirements, depreciation, and other data affecting the income of the company in the four-year period 2007 to 2010, inclusive. The following data were in the truck account as of January 1, 2007:

The Accumulated Depreciation—Trucks account, previously adjusted to January 1, 2007, and duly entered in the ledger, had a balance on that date of $16,460. This amount represented the straight-line depreciation on the four trucks from the respective dates of purchase, based on a five-year life and no residual value. No debits had been made to this account prior to January 1, 2007.
Transactions between January 1, 2007 and December 31, 2010 and their record in the ledger were as follows:
1. July 1, 2007: Truck no. 1 was sold for $1,000 cash. The entry was a debit to Cash and a credit to Trucks, $1,000.
2. January 1, 2008: Truck no. 3 was traded for a larger one (no. 5) with a five-year life. The agreed purchase price was $12,000.
The Jarrett Company paid the other company $1,780 cash on the transaction. The entry was a debit to Trucks, $1,780, and a credit to Cash, $1,780.
3. July 1, 2009: Truck no. 4 was damaged in a wreck to such an extent that it was sold as junk for $50 cash. Jarrett Company received $950 from the insurance company. The entry made by the bookkeeper was a debit to Cash, $1,000, and credits to Miscellaneous Revenue, $50, and Trucks, $950.
4. July 1, 2009: A new truck (no. 6) was acquired for $20,000 cash and debited at that amount to the Trucks account. The truck has a five-year life.
Entries for depreciation had been made at the close of each year as follows: 2007, $8,840; 2008, $5,436; 2009, $4,896; 2010, $4,356.

1. For each of the four years, calculate separately the increase or decrease in earnings arising from the company’s errors in determining or entering depreciation or in recording transactions affecting trucks.
2. Prove your work by one compound journal entry as of December 31, 2010; the adjustment of the Trucks account is to reflect the correct balances, assuming that the books have not been closed for2010.

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  • CreatedDecember 09, 2013
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