Presented here are selected transactions for Spector Limited for 2018. Spector uses straight-line depreciation and records adjusting entries annually.
Jan. 1 Sold a delivery truck for $18,000 cash. The truck cost $62,000 when it was purchased on January 1, 2015, and was depreciated based on a four-year useful life with a $6,000 residual value.
Sept. 1 Sold computers that were purchased on January 1, 2016. They cost $10,980 and had a useful life of three years with no residual value. The computers were sold for $500 cash.
Dec. 30 Retired equipment that was purchased on January 1, 2009. The equipment cost $150,000 and had a useful life of 10 years with no residual value. No proceeds were received.
Instructions
(a) Record the above transactions.
(b) Assume that, when the delivery truck was sold on January 1, the accountant only recorded a debit to Cash and a credit to Miscellaneous Revenue. Because of this, also assume that the accountant recorded depreciation on this asset for 2018. Discuss what accounts are now overstated or understated as a result of these errors.