You requested a depreciation schedule for Semitrucks of Tandang Sora

Manufacturing Company showing the additions, retirements, depreciation and

other data affecting the income of the Company in the 4-year period 2003 to 2006,
inclusive. The Semitrucks account consists of the following as of January 1, 2003:
Truck No. 1 purchased Jan. 1, 2000, cost
Truck No. 2 purchased July 1, 2000, cost
Truck No. 3 purchased Jan. 1, 2002, cost
Truck No. 4 purchased July 1, 2002, cost

P 216,000
264,000
360,000
288,000
P1,128,000

The Semitrucks Accumulated Depreciation account previously adjusted to

January 1, 2003, and duly entered to the ledger, had a balance on that date of
P302,000 (depreciation on the 4 trucks from respective date of purchase, based on
five-year life, no salvage value). No charges have been made against the account
before January 1, 2003.
Transactions between January 1, 2003, and December 31, 2006, and their record in
the ledger were as follows:
July 1, 2003 Truck No. 3 was traded for larger one (No. 5), the agreed purchase
price of which was P408,000. Tandang Sora Mfg. Co. paid the
automobile dealer P180,000 cash on the transaction. The entry was
debit to Semitrucks and a credit to cash, P180,000.
Jan. 1, 2004 Truck No. 1 was sold for P42,000 cash; entry debited Cash and
credited Semitrucks, P42,000.
July 1, 2005 A new truck (No. 6) was acquired for P432,000 cash and was charged
at that amount to Semitrucks account. (Assume truck No. 2 was not
retired.)

July 1, 2005 Truck No. 4 was damaged in a wreck to such an extent that it was sold
as junk for P8,400 cash. Tandang Sora Mfg. Co. received P30,000
from the insurance company. The entry made by the bookkeeper was
a debit to cash, P38,400, and credits to Miscellaneous Income, P8,400
and Semitrucks P 30,000.
Entries for depreciation had been made for the close of each year as follows: 2003,
P243,600; 2004, P253,200; 2005, P293,400; 2006, P333,600.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
(Disregard tax implications)
1. The 2006 depreciation expense is overstated by
a. P165,600
b. P108,300
c. P208,800
P168,000

d.

2. The carrying amount of Semitrucks as of December 31, 2006 is

a. P1,062,480
b. P340,800
c. P604,800
P424,800

d.

3. The 2003 net income is overstated by

a. P10,800
b. P24,000

c. P37,200

d. P0

4. The 2004 net income is understated by

a. P19,200
b. P60,000
c. P61,200

d. P0

5. Assuming the errors were not discovered and corrected, the December 31,
2006 retained earnings would have been understated by
a. P77,400
b. P243,000
c. P77,400
d. P0