Soon after December 31 2014 the auditor of Morino

Manufacturing Corp #2176

Soon after December 31,2014, the auditor of Morino Manufacturing Corp. asked the company
to prepare a depreciation schedule for semi trucks that showed the additions, retirements,
depreciation, and other data that affected the company's income in the four-year period from
2011 to 2014, inclusive. The following data were obtained.Balance of Trucks account, January
1, 2011:Truck no. 1. purchased Jan. 1, 2008, cost ......... $18,000Truck no. 2, purchased July 1,
2008, cost ........ 22,000Truck no. 3, purchased Jan. 1, 2010, cost ........ 30,000Truck no. 4,
purchased July 1, 2010, cost ........ 24,000Balance, January 1, 2011 ............... $94,000The
account Accumulated Depreciation- Trucks had a correct balance of $30,200 on January 1,
2011. (This includes depreciation on the four trucks from the respective dates of purchase,
based on a five-year life, with no residual value.) No charges had been made against the
account before January 1, 2011. Transactions between January 1, 2011, and December 31,
2014, and their record in the ledger were as follows:July 1, 2011 Truck no. 3 was traded for a
larger one (no. 5). The agreed purchase price (fair value) was $34,000. Morino Manufacturing
paid the automobile dealer $15,000 cash on the transaction. The entry was a debit to Trucks
and a credit to Cash, $15,000.Jan. 1, 2012 Truck no. 1 was sold for $3,500 cash. The entry was
a debit to Cash and a credit to Trucks, $3,500. July 1, 2013 A new truck (no. 6) was acquired for
$36,000 cash and was charged at that amount to the Trucks account. (Assume truck no. 2 was
not retired.)July 1, 2013 Truck no. 4 was so badly damaged in an accident that it was sold as
scrap for $700 cash. Morino Manufacturing received $2,500 from the insurance company. The
entry made by the bookkeeper was a debit to Cash, $3,200, and credits to Gain on Disposal of
Trucks, $700, and Trucks, $2,500.Entries for depreciation were made at the close of each year
as follows: 2011, $20,300; 2012, $21,100; 2013, $24,450; and 2014, $27,800.Instructions(a)
For each of the four years, calculate separately the increase or decrease in net income that is
due to the company's errors in determining or entering depreciation or in recording transactions
affecting the trucks. Ignore income tax considerations.(b) Prepare one compound journal entry
as at December 31, 2014, to adjust the Trucks account to reflect the correct balances according
to your schedule, and assuming that the books have not been closed for 2014.View Solution:
Soon after December 31 2014 the auditor of Morino Manufacturing Corp

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