Westmiller Construction Company purchased a new truck on December 31, 2020, for $48,000. The truck has an estimated useful life of three years and an estimated salvage value of $12,000. When the truck was purchased, the company's accountant mistakenly made the following entry:

Over the life of the truck, the company made no other entries associated with it.

INSTRUCTIONS:
a. What entry should Westmiller Construction Company have made on December 31, 2020?
b. Assuming that the straight-line method of depreciation should have been used and that the error was not discovered, in what direction and by how much was net income misstated in 2020 and 2021?
c. Assuming that the double-declining-balance method of depreciation should have been used and that the error was not discovered, in what direction and by how much was net income misstated in 2020 and 2021?

Transcribed Image Text:

Depreciation Expense (E, -RE) Cash (-A) 48,000 48,000