It is December 31, 2015, and XYZ Corporation is preparing adjusting entries at the end of the accounting year. The company owns two different types of trucks. Assume a net income of $90,000 and cash dividends declared and paid of $20,000 for 2015. The company's corporate tax rate is 20%. The following situations confront the company accountant.

1) For each truck, give the required correcting entry including any income tax effect of the error for December 31, 2015. Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 15 would be 15/Jan).

Truck 1 cost $56,000 on January 1, 2013. It should be depreciated on a straight-line basis over an estimated useful life of 10 years with a $11,000 residual value. At December 31, 2015, the accountant discovered that, in error, the truck was never depreciated. Books are still open for 2015 but all previous years' books are closed.

Truck 2 cost $44,000 on January 1, 2011. In error, the $44,000 truck cost was expensed in 2011. The truck should be depreciated on a straight-line basis over a estimated useful life of 5 years with a $13,000 residual value. Books are still open for 2015 but all previous years' books are closed.

2) Assume that there was a balance of $50,000 in opening retained earnings on January 1, 2015 and that XYZ Corporation follows ASPE. Present the statement of retained earnings for the year ended December 31, 2015.

3) REQUIRED DISCLOSURES:
Report the income tax expense (recovery) amount for the cumulative error correction.

Answer rating: 100% (QA)

1 The truck 1 purchased on January 1 2013 was not depreciated previously We need to make the entries for depreciation relating to 2013 and 2014 and al... View the full answer