A depreciation schedule for semi-trucks of ISIDRO MANUFACTURING COMPANY was requested by your auditor soon after December 31, 2017, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2014 to 2017, inclusive. The following data were ascertained. Balance of Trucks account, Jan. 1, 2014 Truck No. 1 purchased Jan. 1, 2011, cost P180,000 Truck No. 2 purchased July 1, 2011, cost 220,000 Truck No. 3 purchased Jan. 1, 2013, cost 300,000 Truck No. 4 purchased July 1, 2013, cost 240,000 Balance, Jan. 1, 2014 P940,000 The Accumulated Depreciation—Trucks account previously adjusted to January 1, 2014, and entered in the ledger, had a balance on that date of P302,000 (depreciation on the four trucks from the respective dates of purchase, based on a 5-year life, no salvage value). No charges had been made against the account before January 1, 2014. Transactions between January 1, 2014, and December 31, 2017, which were recorded in the ledger, are as follows. July 1, 2014 Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of which was P400,000. Isidro Mfg. Co. paid the automobile dealer P220,000 cash on the transaction. The entry was a debit to Trucks and a credit to Cash, P220,000. The transaction has commercial substance. Jan. 1, 2015 Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited Trucks, P35,000. July 1, 2016 A new truck (No. 6) was acquired for P420,000 cash and was charged at that amount to the Trucks account. (Assume truck No. 2 was not retired.) July 1, 2016 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for P7,000 cash. Isidro Mfg. Co. received P25,000 from the insurance company. The entry made by the bookkeeper was a debit to Cash, P32,000, and credits to Miscellaneous Income, P7,000, and Trucks, P25,000. Entries for depreciation had been made at the close of each year as follows: 2014, P210,000; 2015, P225,000; 2016, P250,500; 2017, P304,000. 36. What is the total depreciation expense for the year ended December 31, 2014? A. P180,000 B. P198,000 C. P172,000 D. P228,000 37. What is the gain (loss) on trade in of Truck #3 on July 1, 2014? A. (P30,000) B. P10,000 C. (P60,000) D. P190,000 38. What is the net book value of the Trucks on December 31, 2017? A. P414,000 B. P348,000 C. P228,500 D. P894,000 39. The total depreciation expense recorded for the 4-year period (2014-2017) is overstated by A. P185,500 B. P265,500 C. P287,500 D. P275,500 40. The books have not been closed for 2017. What is the compound journal entry on December 31, 2017 to correct the company’s errors for the 4-year period (2014-2017)? A. Accumulated depreciation 629,500 Trucks 480,000 Retained earnings 9,500 Depreciation expense 140,000 B. Accumulated depreciation 665,500 Trucks 480,000 Retained earnings 45,500 Depreciation expense 140,000 C. Accumulated depreciation 665,500 Trucks 480,000 Retained earnings 185,500 D. Accumulated depreciation 665,500 Trucks 665,500
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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by your auditor soon after December 31, 2017, showing the additions, retirements, depreciation,
and other data affecting the income of the company in the 4-year period 2014 to 2017, inclusive.
The following data were ascertained.
Balance of Trucks account, Jan. 1, 2014
Truck No. 1 purchased Jan. 1, 2011, cost P180,000
Truck No. 2 purchased July 1, 2011, cost 220,000
Truck No. 3 purchased Jan. 1, 2013, cost 300,000
Truck No. 4 purchased July 1, 2013, cost 240,000
Balance, Jan. 1, 2014 P940,000
The
entered in the ledger, had a balance on that date of P302,000 (depreciation on the four trucks
from the respective dates of purchase, based on a 5-year life, no salvage value). No charges had
been made against the account before January 1, 2014.
Transactions between January 1, 2014, and December 31, 2017, which were recorded in the
ledger, are as follows.
July 1, 2014 Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of which
was P400,000. Isidro Mfg. Co. paid the automobile dealer P220,000 cash on the
transaction. The entry was a debit to Trucks and a credit to Cash, P220,000. The
transaction has commercial substance.
Jan. 1, 2015 Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited Trucks,
P35,000.
July 1, 2016 A new truck (No. 6) was acquired for P420,000 cash and was charged at that amount
to the Trucks account. (Assume truck No. 2 was not retired.)
July 1, 2016 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for
P7,000 cash. Isidro Mfg. Co. received P25,000 from the insurance company. The
entry made by the bookkeeper was a debit to Cash, P32,000, and credits to
Miscellaneous Income, P7,000, and Trucks, P25,000.
Entries for depreciation had been made at the close of each year as follows: 2014, P210,000;
2015, P225,000; 2016, P250,500; 2017, P304,000.
36. What is the total depreciation expense for the year ended December 31, 2014?
A. P180,000 B. P198,000 C. P172,000 D. P228,000
37. What is the gain (loss) on trade in of Truck #3 on July 1, 2014?
A. (P30,000) B. P10,000 C. (P60,000) D. P190,000
38. What is the net book value of the Trucks on December 31, 2017?
A. P414,000 B. P348,000 C. P228,500 D. P894,000
39. The total depreciation expense recorded for the 4-year period (2014-2017) is overstated by
A. P185,500 B. P265,500 C. P287,500 D. P275,500
40. The books have not been closed for 2017. What is the compound
31, 2017 to correct the company’s errors for the 4-year period (2014-2017)?
A. Accumulated depreciation 629,500
Trucks 480,000
Depreciation expense 140,000
B. Accumulated depreciation 665,500
Trucks 480,000
Retained earnings 45,500
Depreciation expense 140,000
C. Accumulated depreciation 665,500
Trucks 480,000
Retained earnings 185,500
D. Accumulated depreciation 665,500
Trucks 665,500
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