In preparing the annual financial statements for Jadela Oil Inc., the correct manner of reporting the following items was not clear to the company’s employees. Explain where each of the following items should appear in the financial statements.
a. After depreciating office equipment for three years based on an expected useful life of eight years, the company decided this year that the office equipment should last seven more years. As a result, the depreciation for the current year is $8,000 instead of $10,000.
b. This year, the accounting department of the company discovered that last year, an installment payment on the five-year note payable had been charged entirely to interest expense. The after-tax effect of the charge to interest expense was $15,400.
c. The company keeps its repair trucks for several years before disposing of the old trucks and buying new trucks. On June 1 of this year, for the first time in 10 years, it sold old trucks for a gain of $19,900. New trucks were purchased in August of the same year.