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A depreciation schedule for semi-trucks of MartinezManufacturing Company was requested by your auditor soon afterDecember 31, 2018, showing the additions, retirements,depreciation, and other data affecting the income of the company inthe 4-year period 2015 to 2018, inclusive. The following data wereascertained.

Balance of Trucks account, Jan. 1, 2015

Truck No. 1 purchased Jan. 1, 2012,cost

$21,780

Truck No. 2 purchased July 1, 2012,cost

26,620

Truck No. 3 purchased Jan. 1, 2014,cost

36,300

Truck No. 4 purchased July 1, 2014,cost

29,040

Balance, Jan. 1, 2015

$113,740


The Accumulated Depreciation-Trucks account previously adjusted toJanuary 1, 2015, and entered in the ledger, had a balance on thatdate of $36,542 (depreciation on the four trucks from therespective dates of purchase, based on a 5-year life, no salvagevalue). No charges had been made against the account before January1, 2015.

Transactions between January 1, 2015, and December 31, 2018, whichwere recorded in the ledger, are as follows.

July 1, 2015

Truck No. 3 was traded for a larger one (No. 5), the agreedpurchase price of which was $48,400. Martinez. paid the automobiledealer $26,620 cash on the transaction. The entry was a debit toTrucks and a credit to Cash, $26,620. The transaction hascommercial substance.

Jan. 1, 2016

Truck No. 1 was sold for $4,235 cash; entry debited Cash andcredited Trucks, $4,235.

July 1, 2017

A new truck (No. 6) was acquired for $50,820 cash and wascharged at that amount to the Trucks account. (Assume truck No. 2was not retired.)

July 1, 2017

Truck No. 4 was damaged in a wreck to such an extent that it wassold as junk for $847 cash. Martinez received $3,025 from theinsurance company. The entry made by the bookkeeper was a debit toCash, $3,872, and credits to Miscellaneous Income, $847, andTrucks, $3,025.


Entries for straight-line depreciation had been made at the closeof each year as follows: 2015, $25,410; 2016, $27,225; 2017,$30,311; 2018, $36,784.

For each of the 4 years, compute separately the increase ordecrease in net income arising from the company’s errors indetermining or entering depreciation or in recording transactionsaffecting trucks, ignoring income tax considerations.(Enter credit, understated and decrease amounts usingeither a negative sign preceding the number e.g. -45 or parenthesese.g. (45).)

Per Company Books

As Adjusted

Net

Trucks dr. (cr.)

Acc. Dep. Trucks dr. (cr.)

Retained Earnings dr. (cr.)

Trucks dr. (cr.)

Acc. Dep., Trucks dr, (cr.)

Retained Earnings dr, (cr.)

Income Overstated (Understated)

1/1/15

Balance

$

$

$

$

$

$

$

7/1/15

Purchase Truck #5

Trade Truck #3

12/31/15

Depreciation

12/31/15

Balances

1/1/16

Sale of Truck #1

12/31/16

Depreciation

12/31/16

Balances

7/1/17

Purchase of Truck #6

7/1/17

Disposal of Truck #4

12/31/17

Depreciation

12/31/17

Balances

12/31/18

Depreciation

12/31/18

Balance

$

$

$

$

$

$

$

Prepare one compound journal entry as of December 31, 2018, foradjustment of the Trucks account to reflect the correct balances asrevealed by your schedule, assuming that the books have not beenclosed for 2018. (If no entry is required, select "NoEntry" for the account titles and enter 0 for the amounts. Creditaccount titles are automatically indented when the amount isentered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

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28 Sep 2019

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Introduction

Jones Widget Company (JWC) incorporated at the beginning of2014. Below is the post closing trial balance as of 12/31/2014.
Account Title Balance
Cash 10,900
AccountsReceivable 8,950
Allowance for DoubtfulAccounts 1,095
Inventory 11,560
Prepaid Rent 3,000
Equipment 39,000
AccumulatedDepreciation 3,800
Accounts Payable 0
Sales Tax payable 600
FICA Taxes Payable 1,000
Federal Income Tax(FIT) Payable 600
Wages Payable 1,350
Unemployment taxespayable 1,000
Unearned Revenue 3,750
Interest Payable 360
Notes Payable 16,000
Common Stock 20,300
Add'l PIC 16,210
RE - December 31,2014 12,545
Treasury Stock 5,200
Additional Information:
•

JWC establishes a policy that it will sell inventory at $150 perunit. Sales taxes are 6%. JWC will use the FIFO method and recordCOGS on a perpetual basis.
•

Employee wages are $3,800 per month. Employees are paid on the16th for the first half of the month and on the first of thefollowing month for the second half of each month. The income taxeswithheld are $300 each paycheck, and the FICA taxes are $250 perpaycheck. The withholding and the employer’s matching contributionare paid monthly on the second day of the month. In addition,unemployment taxes of $65 are accrued with each payroll. The taxesare paid on March 31.
•

The Beginning inventory of $11,560 consists of 170 units.
• ThePrepaid Rent balance is for January 2015.
•

The equipment was purchased on July 1, 2014. It is beingdepreciated using the straight line method.
•

Unearned Revenue is for 25 units ordered and paid for in advanceby two customers in late December. One order will be filled inJanuary, the remainder in early February.
•

The Notes payable represents a $16,000 bank loan received onOctober 1, 2013 at 9% annual interest.
• The parvalue on the common stock is $2.
• Thetreasury stock account has 400 shares.
• Record alltransactions to the nearest dollar.
Below are transactions for January2015
Jan 1 PaidDecember 31 payroll previously accrued.
Jan 2 A $104,0006% six year bond is issued. The effective yield is 7%.
6% 7%
Present Value of $1factors .7050 .6663
Present Value of anAnnuity of $1 factors 4.9173 4.7665
Jan 2

A truck is purchased for $17,000 cash. It is estimated the truckwill be used for 50,000 miles and will have no salvage value.(Record the purchase to the account "Vehicles").
Jan 2

Payroll taxes payable (FIT & FICA) recorded in December areremitted to the IRS.
Jan 5 A $1,050customer account is written off as uncollectible.
Jan 6

Sales on account of 165 units of inventory occur during January.Include sales tax of 6%.
Jan 10

Sales taxes of $600 which had been collected and recorded inDecember are paid to the state.
Jan 11 Anadditional 60 units of inventory are purchased on account for$3,900.
Jan 12

The equipment purchased in 2014 for $39,000 is sold for $37,000.No additional depreciation is recorded for January.
Jan 14

Having sold the equipment, JWC pays off the note in full. Theamount paid is $16,414 which includes an additional $54 interestthrough Jan 14.
Jan 15

A portion of the advance order from December (20 units) isdelivered. There is no sales tax on this order.
Jan 16

Record and pay payroll for January 1-15. Record the employer’smatching share of FICA taxes And the unemployment taxes also.
Jan 20 200 sharesof the treasury stock are sold for $3,800.
Jan 21 Collections from sales on account totaled $9,900.
Jan 27 Sold theother 200 shares of the treasury stock for $2,000.
Jan 28

JWC declares and distributes a 10% Stock dividend. The marketprice of the stock at the time is $5 per share. (Hint on thestatement of retained earnings, this amount will should be shown asa dividend).
Jan 31

(Adjusting 1) Record depreciation on the truck. During January,the truck is driven 2,500 miles.
Jan 31

(Adjusting 2) It is estimated that 3% of the ending accountsreceivable balance will be uncollectible.
Jan 31 (Adjusting3) Record January rent expired.
Jan 31

(Adjusting 4) Accrue January 31 payroll, which will be payableon February 1. Record the employer’s matching share of FICA taxesalso.
Jan 31

(Adjusting 5) Record ONE MONTH’S interest expense andamortization of premium or discount on the bond. Round to thenearest dollar.
1-a.

Prepare all January journal entries and adjusting entries

1-b.

Post all January entries (transactions and adjustments) to theT-accounts and complete the adjusted trial balance

Molina Companys reported net incomes for 2013 and the previoustwo years are presented below.

2013 2012 2011

$105,000 $95,000 $70,000

2015s net income was properly determined after giving effect tothe following accounting changes, error corrections, etc. whichtook place during the year. The incomes for 2013 and 2014 do nottake these items into account and are stated at the amountsdetermined in those years. Ignore income taxes.

Instructions

(a)For each of the six accounting changes, errors, or priorperiod adjustment situations described below, prepare the journalentry or entries Molina Company should record during 2015 . If noentry is required, write none.

(b)After recording the situation in part (a) above, prepare theyear-end adjusting entry for December 31, 2015 . If no entry, writenone.

1>Early in 2013, Molina determined that equipment purchasedin January, 2011 at a cost of $645,000, with an estimated life of 5years and salvage value of $45,000 is now estimated to continue inuse until December 31, 2017 and will have a $15,000 salvage value.Molina recorded its 2013 depreciation at the end of 2013 .

2>Molina determined that it had understated its depreciationby $20,000 in 2012 owing to the fact that an adjusting entry didnot get recorded.

3>Molina bought a truck January 1, 2010 for $50,000 with a$5,000 estimated salvage value and a six-year life. The companydebited an expense account and credited cash on the purchase date.The truck is expected to be traded at the end of 2015 . Molina usesstraight-line depreciation for its trucks.

4>During 2013, Molina changed from the straight-line methodof depreciating its cement plant to the double-declining-balancemethod. The following calculations present depreciation on bothbases. (Ignore income taxes.) The 2013 amount appliesdouble-declining balance to the 1/1/13 carrying amount afterstraight-line was used.

2013 2012 2011

Straight-line $100,000 $100,000 $100,000

Double-declining $200,000 $160,000 $200,000

5>Molina, in reviewing its provision for uncollectiblesduring 2013, has determined that 1/2 of 1% is the appropriateamount of bad debt expense to be charged to operations. The companyhad used 1% as its rate in 2012 and 2011 when the expense had been$20,000 and $14,000, respectively. The company would have recorded$50,000 of bad debt expense on December 31, 2013 under the oldrate.

6>During 2013, Molina decided to change from the LIFO methodof valuing inventories to average cost. The net incomes involvedunder each method were as follows:

2013 2012 2011

LIFO $51,000 $59,000 $42,000

Average cost $63,000 $67,000 $48,000

Assume no difference between LIFO and average cost inventoryvalues in years prior to 2011 .



The following list of accounts and their balances represents theunadjusted trial balance of Alt Company at December 31, 2014:
Cash $ 27,290
Short-term Investment 60,000
Accounts Receivable 69,000
Allowance for Doubtful Accounts $ 500
Inventory 54,720
Prepaid Rent 36,000
Plant Assets 160,000
Accumulated Depreciation 14,740
Accounts Payable 11,370
Bonds Payable 90,000
Common Stock 170,000
Retained Earnings 97,180
Sales Revenue 214,800
Cost of Goods Sold 154,400
Transportation-Out 11,000
Salaries and Wages Expense 32,000
Interest Expense 2,040
Rent Revenue 21,600
Miscellaneous Expense 890
Insurance Expense 12,850

Additional Data:

1. The balance in the Insurance Expense account contains thepremium costs of three policies:
Policy 1, remaining cost of $2,550, 1-yr. term, taken out on May 1,2013;
Policy 2, original cost of $9,600, 3-yr. term, taken out on Oct. 1,2014;
Policy 3, original cost of $1,300, 1-yr. term, taken out on Jan. 1,2014.

2. On September 30, 2014, Alt received $21,600 rent from its lesseefor an eighteen month lease beginning on that date.

3. The regular rate of depreciation is 10% per year. Acquisitionsand retirements during a year are depreciated at half this rate.There were no purchases during the year. On December 31, 2013, thebalance of the Plant and Equipment account was $220,000.

4. On December 28, 2014, the bookkeeper incorrectly credited salesfor a receipt on account in the amount of $4,200.

5. At December 31, 2004, salaries accrued but unpaid were$4,200.

6. Alt estimates that 1% of sales will become uncollectible.

7. On August 1, 2014, Alt purchased, as a short-term investment, 60$1,000, 6% bonds of Allen Corp. at par. The bonds mature on August1, 2015. Interest payment dates are July 31 and January 31.

8. On April 30, 2014, Alt rented a warehouse for $3,000 per month,paying $36,000 in advance.

Instructions

Record the necessary correcting and adjusting entries.

Indicate which of the adjusting entries may be reversed at thebeginning of the next accounting period.


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