value: 1.50 points Described below are six independent and unrelated situations

Question

value: 1.50 points Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2016 before any adjusting entries or closing entries were ppepared each company is 40% in all years. Any tax effects should be adjusted through the deferred tax liability account. the tax rate for a. Fleming Home Products introduced a new line of commercial awnings in 2015 that carry a one-year warranty against manufacturer's defects. Based on industry experience, warranty costs were expected to approximate 4% of sales. Sales of the awnings in 2015 were $3,400,000. Accordingly, warranty expense and a warranty liability of $136,000 were recorded in 2015. In late 2016, the company's claims experience was evaluated and it was determined that claims were far fewer than expected: 3% of sales rather than 4%. Sales of the awnings in 2016 were S3 900,000 and warranty expenditures in 2016 totaled $88,725 b. On Decemb30012, Rival Industries acquired its office building at a cost of $980,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However plans were finalized in 2016 to relocate the company headquarters at the end of 2020. The vacated office building will have a salvage value at that time of $690,000. c. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of d. At the beginning of 2013, the Hoffman Group purchased office equipment at a cost of $319,000. Its e. In November 2014, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking 2016 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2016, is $680,000 useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years'-digits method. On January 1, 2016, the company changed to the straight-line method. nalties for violations of clean air laws. When the financial statements were issued in 2015, Huggins ad not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $190,000 in penalties. Accordingly, the following entry was

Explanation / Answer

a. 1. This is a estimate change. No entry is needed to record as a direct result of the change in estimate 2. Adjusting entry for change in warranty Warranty Expenses ($3,900,000 x 3%) $117,000         Estimated warranty liability $117,000 b. 1. This is a estimate change. No entry is needed to record as a direct result of the change in estimate 2. Adjusting entry for depreciation Calculation of annual depreciation after the estimate change Cost of the building $980,000 Annual depreciation ($980000 / 40 years) $24,500 Depreciation to date (2013-2015) ($24500 x 3years) $73,500 Undepreciated cost (980000 - 73500) $906,500 Less: new estimated salvage value ($690,000) Amount to be depreciated $216,500 Estimated remaining life (2016 - 2020) 5years Annual depreciation ($216500 / 5 years) $43,300 Adjusting entry Depreciation expenses $43,300        Accumulated depreciation $43,300 c. This is a change in accounting principle which will be report prospectively 1. No entry is needed to record as a direct result of the change 2.No adjusting entry is needed to be record for change in inventory cost method. The inventory at January 1, 2016 of $680,000 under FIFO method will be taken as beginning inventory for LIFO method, as it is not possible to calculate the cumulative effect on income statement of change in inventory cost method. d. This is a change in method of depreciation. 1. No entry is needed to record as a direct result of the change 2. Adjusting entry for depreciation Depreciation Depreciation expenses $23,200        Accumulated depreciation $23,200 Calculation of depreciation under sum of the digit method for 3 years Year Depreciation Base Remaining life of Equipment Depreciation Fraction Depreciation expense Book value 1 $319,000 10 10 / 55 58000 $261,000 2 $319,000 9 9 / 55 52200 $208,800 3 $319,000 8 8 / 55 46400 $162,400 Sum of the years digit = 1+2+3+4+5+6+7+8+9+10 = 55 Straight line depreciation = $162400/7 years = $23200 e. Question is not complete.

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