Question 6 (Total 17 marks) ABC Company (ABC) is an express logistic service provider. The company owns two trucks as follow. Truck No. 1. 2. 3. 4. Date of acquisition January 1, 2016 July 1, 2016 January 1, 2018 July 1, 2019 Balance as per January 1,2020 Acquisition cost US$ 70,000 50,000 60,000 48,000 228,000 The company adopts double-declining balance depreciation method, based on a 10-year life with no residual value. During a financial statement review in 2020, you noticed the following three transactions between January 1, 2020 and December 31, 2020 which were recorded in the ledger. (i) On January 1, 2020, ABC revised the expected useful life of Truck no. 3 to 8 years and with residual value of $1,000. On December 31, 2020, the accounting entry was a debit to depreciation $8,000 and credit accumulated depreciation $8,000. (ii) On March 1, 2020, ABC sold Truck No. 2. with $13,000. The disposal entry was a debit to Cash $13,000 and a credit to Trucks $13,000. (iii) On July 1, 2020, Truck No. 1 was sold for $27,000 cash, entry debited Cash $27,000 and credited Trucks, $27,000. Required: a) Prepare the correcting entries for (i) to (iii). Round your answers to the nearest dollar. Explain (i) to (iii) separately the effect on income statement and statement of financial statement arising from the above errors. (12 marks) b) Assume ABC acquired new building on January 1, 2020, for $8,900,000 with cash. ABC elects to value the building using revaluation accounting. The building is being depreciated on a straight- line basis over its 20 years useful life and no residual value. On December 31, 2020, the fair value of the building is determined to be $10,000,000. Up to December 31, 2020, you only found the annual depreciation entry of debited Accumulated Depreciation $500,00 and credited Depreciation $500,000 related to this building. Prepare (i) the correcting entry for the depreciation and (ii) all the necessary journal entries related to this building in 2020 (except annual depreciation). (5 marks) Question 6 (Total 17 marks) ABC Company (ABC) is an express logistic service provider. The company owns two trucks as follow. Truck No. 1. 2. 3. 4. Date of acquisition January 1, 2016 July 1, 2016 January 1, 2018 July 1, 2019 Balance as per January 1,2020 Acquisition cost US$ 70,000 50,000 60,000 48,000 228,000 The company adopts double-declining balance depreciation method, based on a 10-year life with no residual value. During a financial statement review in 2020, you noticed the following three transactions between January 1, 2020 and December 31, 2020 which were recorded in the ledger. (i) On January 1, 2020, ABC revised the expected useful life of Truck no. 3 to 8 years and with residual value of $1,000. On December 31, 2020, the accounting entry was a debit to depreciation $8,000 and credit accumulated depreciation $8,000. (ii) On March 1, 2020, ABC sold Truck No. 2. with $13,000. The disposal entry was a debit to Cash $13,000 and a credit to Trucks $13,000. (iii) On July 1, 2020, Truck No. 1 was sold for $27,000 cash, entry debited Cash $27,000 and credited Trucks, $27,000. Required: a) Prepare the correcting entries for (i) to (iii). Round your answers to the nearest dollar. Explain (i) to (iii) separately the effect on income statement and statement of financial statement arising from the above errors. (12 marks) b) Assume ABC acquired new building on January 1, 2020, for $8,900,000 with cash. ABC elects to value the building using revaluation accounting. The building is being depreciated on a straight- line basis over its 20 years useful life and no residual value. On December 31, 2020, the fair value of the building is determined to be $10,000,000. Up to December 31, 2020, you only found the annual depreciation entry of debited Accumulated Depreciation $500,00 and credited Depreciation $500,000 related to this building. Prepare (i) the correcting entry for the depreciation and (ii) all the necessary journal entries related to this building in 2020 (except annual depreciation)
