Question :
A depreciation plan for semi-trucks of Ichiro Manufacturing Company was demanded by your auditor soon after 31st December, 2013, indicating the additions, depreciation, retirements, and other data affecting the income of the company in the 4-year period 2010 to 2013, inclusive. The subsequent data were ascertained.
Balance of Trucks account, Jan. 1, 2010
Truck No. 1 purchased Jan. 1, 2007, cost $27,900
Truck No. 2 purchased July 1, 2007, cost 34,100
Truck No. 3 purchased Jan. 1, 2009, cost 46,500
Truck No. 4 purchased July 1, 2009, cost 37,200
Balance, Jan. 1, 2010 $145,700
The Accumulated Depreciation-Trucks account formerly adjusted to January 1, 2010, and entered in the ledger, had a balance on that date of $46,810 (depreciation on the four trucks from the individual dates of purchase, based on a 5-year life, no salvage value). No charges had been made against the account before 1st January, 2010.
Transactions between 1st January, 2010, and 31st December, 2013, which were recorded in the ledger, are as given.
July 1, 2010 Truck No. 3 was traded for a larger one, the agreed purchase price of which was $62,000. Ichiro Mfg. Co. paid the automobile dealer $34,100 cash on the transaction. The entry was a debit to Trucks and a credit to Cash, $34,100. The transaction has commercial substance.
Jan. 1, 2011 Truck No. 1 was sold for $5,425 cash; entry debited Cash and credited Trucks, $5,425.
July 1, 2012 A new truck was acquired for $65,100 cash and was charged at that amount to the Trucks account. (Suppose truck No. 2 was not retired.)
July 1, 2012 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for $1,085 cash. Ichiro Mfg. Co. received $3,875 from the insurance corporation. The entry made by the bookkeeper was a debit to Cash, $4,960, and credits to Miscellaneous Income, $1,085, and Trucks, $3,875.
Entries for depreciation had been made at the close of each year as given: 2010, $32,550; 2011, $34,875; 2012, $38,828; 2013, $47,120.
(a) For each of the four years, evaluate individually the increase or decrease in total income arising from the company's errors in evaluating or entering depreciation or in recording transactions affecting trucks, ignoring income tax considerations. (Enter Credit amounts and Understated Income amounts with a negative sign preceding the number, e.g. -2,520 or in parenthesis, e.g. (2,520).)