Problem 4. (error correction and depreciation)

The delivery trucks account of your client, MM Co., had a balance of 2,820,000 on Jan. 1, 2016, which included the ff.:

Truck no.Acquisition dateCost

1Jan. 1, 2013540,000

2July 1, 2013660,000

3Jan. 1, 2015900,000

4July 1, 2015720,000

The accumulated depreciation-delivery trucks account had a balance of 906,000 on Jan. 1, 2016. This amounts represent the depreciation on the four trucks from the respective dates of acquisition, based on a 5 year life, no salvage value. No charges had been made against this account before Jan. 1, 2016.

Transactions completed during the period Jan. 1, 2016 through Dec. 31, 2019, and the entries made to record were as follows:

July 1, 2016

Truck no. 3 traded for a larger truck (truck no. 5), the agreed price of which was 1,020,000. MM paid the dealer 500,000 cash on the transaction. The entry was:

Delivery truck500,000

Cash500,000

Jan. 1, 2017

Truck no. 1 was sold for 110,000. The entry made was:

Cash110,000

Delivery truck110,000

July 1, 2018

A new truck (truck no. 6) was purchased for 1,080,000 cash and was debited at that amount to the delivery trucks account. (Assume truck no. 2 was not retired)

July 1, 2018

Truck no. 4 was severely damaged in an accident and was sold as junk for 21,000 cash. MM received 75,000 from the insurance company. The entry made by the accountant was:

Cash96,000

Sales21,000

Delivery trucks75,000

Entries for depreciation expense had been made at the end of each financial year as follows:

YearDepreciation expense

2015609,000

2016633,000

2017733,500

2018834,000

What amount of gain/loss should have been recognized on the trade in of Truck no. 3 on July 1, 2016? _________________

MM's net income for 2016 was overstated/understated by _______________________

The gain/loss on the sale of truck no. 1 on Jan. 1, 2017 ___________________

MM's net income for 2017 was overstated/understated by _______________________

What amount of loss should have been recognized on the sale of Truck no. 4 on July 1, 2018? _________

MM's net income for 2014 was overstated/understated by _____________________

What amount of depreciation should have been recorded in 2019? _____________________