Truck no. 1 Purchased January 1, 2013 Purchased July 1, 2013 Purchased January 1, 2015 Purchased July 1, 2015 $12,000 10,400 12,800 15,000 $50,200 Truck no. 2 Truck no. 3 Truck no. 4 Balance January 1, 2016 The Accumulated Depreciation-Trucks account, previously adjusted to January 1, 2016, 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 5-ycar life and no residual value. No debits had been made to this account prior to January 1, 2016. Transactions between January 1, 2017, and December 31,2019, and their record in the ledger were as follows: 1. July 1, 2016: 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, 2017: Truck no. 3 was traded for a larger one (no. 5) with a 5-year life. The agreed purchase price was $12,000. Jarrett 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, 2018: Truck no. 4 was damaged in a wreck to such an extent that it was sold as junk for $50 cash. Jarrett 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, 2018: A new truck (no. 6) was acquired for $20,000 cash and debited at that amount to the Trucks account. The truck has a 5-year life. Entries for depreciation had been made at the close of each year as follows: 2016, $8,840; 2017, $5,436; 2018, $4,896; 2019, $4,356.

Financial Accounting: The Impact on Decision Makers

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ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter8: Operating Assets: Property, Plant, And Equipment, And Intangibles

Section: Chapter Questions

Problem 8.6E

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Soon after December 31, 2019, the auditor requested a depreciation schedule for trucks of Jarrett Trucking Company, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4 year period 2016 to 2019 inclusive. The following data were in the Trucks account as of January 1, 2016: 1. Next Level For eacl1 of the 4 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, 2019; the adjustment of the Trucks account is to reflect the correct balances, assuming that the books have not been closed for 2019.

Truck no. 1
Purchased January 1, 2013
Purchased July 1, 2013
Purchased January 1, 2015
Purchased July 1, 2015
$12,000
10,400
12,800
15,000
$50,200
Truck no. 2
Truck no. 3
Truck no. 4
Balance January 1, 2016
The Accumulated Depreciation-Trucks account, previously adjusted to January 1, 2016, 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 5-ycar life and no residual value. No debits had been made
to this account prior to January 1, 2016.
Transactions between January 1, 2017, and December 31,2019, and their record in the ledger were as follows:
1. July 1, 2016: 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, 2017: Truck no. 3 was traded for a larger one (no. 5) with a 5-year life. The agreed purchase price
was $12,000. Jarrett 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, 2018: Truck no. 4 was damaged in a wreck to such an extent that it was sold as junk for $50 cash.
Jarrett 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, 2018: A new truck (no. 6) was acquired for $20,000 cash and debited at that amount to the Trucks
account. The truck has a 5-year life.
Entries for depreciation had been made at the close of each year as follows: 2016, $8,840; 2017, $5,436; 2018,
$4,896; 2019, $4,356.

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