Answer the following questions related to a company’s activities for the current year:

1. A review of the notes payable files discovers that three years ago the company reported the en¬

tire amount of a payment (principal and interest) on an installment note payable as interest ex¬

pense. This mistake had a material effect on the amount of income in that year. How should the correction be reported in the current year financial statements?

2. After using an expected useful life ofseven years and no salvage value to depreciate its office equip¬

ment over the preceding three years, the company decided early this year that the equipment will last only two more years. How should the effects of this decision be reported in the current year financial statements?