Reference no: EM132788082

A depreciation schedule for semi-trucks of ISIDRO MANUFACTURING COMPANY was requested by your auditor soon after December 31, 2017, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2014 to 2017, inclusive.

The following data were ascertained.

Balance of Trucks account, Jan. 1, 2014
Truck No. 1 purchased Jan. 1, 2011, cost P180,000
Truck No. 2 purchased July 1, 2011, cost 220,000
Truck No. 3 purchased Jan. 1, 2013, cost 300,000
Truck No. 4 purchased July 1, 2013, cost 240,000
Balance, Jan. 1, 2014 P940,000

• The Accumulated Depreciation-Trucks account previously adjusted to January 1, 2014, and entered in the ledger, had a balance on that date of P302,000 (depreciation on the four trucks from the respective dates of purchase, based on a 5-year life, no salvage value). No charges had been made against the account before January 1, 2014.

Transactions between January 1, 2014, and December 31, 2017, which were recorded in the ledger, are as follows.

• July 1, 2014 Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of which was P400,000. Isidro Mfg. Co. paid the automobile dealer P220,000 cash on the transaction. The entry was a debit to Trucks and a credit to Cash, P220,000. The transaction has commercial substance.

• Jan. 1, 2015 Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited Trucks, P35,000.

• July 1, 2016 A new truck (No. 6) was acquired for P420,000 cash and was charged at that amount to the Trucks account. (Assume truck No. 2 was not retired.)

• July 1, 2016 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for P7,000 cash. Isidro Mfg. Co. received P25,000 from the insurance company. The entry made by the bookkeeper was a debit to Cash, P32,000, and credits to Miscellaneous Income, P7,000, and Trucks, P25,000.

Entries for depreciation had been made at the close of each year as follows: 2014, P210,000; 2015, P225,000; 2016, P250,500; 2017, P304,000.

Problem 1: What is the total depreciation expense for the year ended December 31, 2014?

A. P180,000 B. P198,000 C. P172,000 D. P228,000

Problem 2: What is the gain (loss) on trade in of Truck #3 on July 1, 2014?

A. (P30,000) B. P10,000 C. (P60,000) D. P190,000

Problem 3: What is the net book value of the Trucks on December 31, 2017?

A. P414,000 B. P348,000 C. P228,500 D. P894,000

Problem 4: The total depreciation expense recorded for the 4-year period (2014-2017) is overstated by

A. P185,500 B. P265,500 C. P287,500 D. P275,500