Molina Company\'s reported net incomes for 2015 and the previous two years are p

Question

Molina Company's reported net incomes for 2015 and the previous two years are presented below:

2015 $105000 2014 $95000 2013 $70000

2015 net income was properly determined after giving effect to the follwing accounting chnages, error corrections, etc...which took place during the year. the incomes for 2013 and 2014 dont take these items into account and are stated at the amounts determined in those years.

Required:-

(A) For each of the six accounting changes,errors, or prior period adjustment situations described below, prepare the journal entry or entries Molina company should record during 2015 to properly update the books for changesand errors which occurred in 2013 and 2014. If no entry is required, write none.

(B) After recording the situations in part A above, prepare the year-end adjusting entry for december 31, 2015. If no entry, write None.

1. Early in 2015, Molina determined that equipment purchased in january, 2013, at a cost of $1,075,000 with estimated life of 5 years and salvage value of $75,000, is now estimated to countinue in use until december 31, 2019, and will have a $25,000 salvage vakue. Molina recorded its 2015 depreciation at end of 2015.

2. Molina determined that it had understand its depreciation by $20,000 in 2014 owing to the fact that an adjusting entry did not get recorded.

3.Molina bought a truck january 1, 2012 for $60,000 with $6,000 estimated salvage value and six year life. the company debited an expense account and credited cash on the purchase date.The truck is expected to be traded at the end of 2014. Molina uses straight-line depreciation for its trucks.

4. Molina in reviewing its provision for uncollectibles during 2015, has determined that 1/2 of 1% is the appropriate amount of bad ebt expense to be charged to opeartions. The company had used 1% as its rate in 2014 and 2013 when the expense had seen $20,000 abd $14,000 respectively. The amount would have recorded $60,000 of bad debt expense on december 31, 2015 under the old rate.

5. During the 2015, molina decided to change from the LIFO method if valuing inventories to average cost. The net incomes involved under each method were as follows:-

2015 2014 2013

LIFO $51000 59000 42000

Average cost 63000 67000 48000

Assume no difference between LIFO and average cost inventory values in years prior to 2013.

Complete part A and B for each 5 problems.

Explanation / Answer

Workings

DR CR 1 a None b Depreciation Expense 130000 Accumulated Depreciation 130000 [($1075000 – $400000– $25,000) ÷ 5] 400000 =(1075000-75000)/5 2 a Retained Earnings 20000 Accumulated Depreciation 20000 b None 3 a Truck 60000 Accumulated Depreciation( 60000-6000)/6 *3 32400 Retained Earnings 27600 b Depreciation Expense 10800 Accumulated Depreciation 10800 4 a None b Bad Debt Expense 30000 Allowance for Doubtful Accounts 30000 5 a Inventory (Beginning) 14000 Retained Earnings 14000 b None

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