1)

2)

3)

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2024 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account. a. Fleming Home Products introduced a new line of commercial awnings in 2023 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 2023 were $3,700,000. Accordingly, warranty expense and a warranty liability of $148,000 were recorded in 2023 . In late 2024, 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 2024 were $4,200,000, and warranty expenditures in 2024 totaled $95,550. b. On December 30, 2020, Rival Industries acquired its office building at a cost of $1,040,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2024 to relocate the company headquarters at the end of 2028 . The vacated office building will have a salvage value at that time of $720,000. c. Hobbs-Barto Merchandising, Incorporated, changed inventory cost methods to LIFO from FIFO at the end of 2024 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2024, is $710,000. d. At the beginning of 2021, the Hoffman Group purchased office equipment at a cost of $352,000. Its 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 1,2024 , the company changed to the straight-line method. e. In November 2022, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2023, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $220,000 in penalties. Accordingly, the following entry was recorded: Late in 2024, a settlement was reached with state authorities to pay a total of $372,000 in penalties. f. At the beginning of 2024, Jantzen Specialties, which uses the sum-of-the-years'-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $467,000. Required: Eor each situation: 1. Identify the type of change. 2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2024 related to the situation described. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2024 related to the situation described. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2024, you discover the following errors related to the 2022 and 2023 financial statements: a. Inventory at 12/31/2022 was understated by $6,000. b. Inventory at 12/31/2023 was overstated by $9,000. c. On 12/31/2023, inventory was purchased for $3,000. The company did not record the purchase until the inventory was paid for early in 2024. At that time, the purchase was recorded by a debit to purchases and a credit to cash. The company uses a periodic inventory system. Required: 1. Assuming that the errors were discovered after the 2023 financial statements were issued, analyze the effect of the errors on 2023 and 2022 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors. Assuming that the errors were discovered after the 2023 financial statements were issued, analyze the effect of the errors on 2023 and 2022 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) Note: Indicate the effect by selecting "O" for Overstated, "U" for Understated and "NE" for No effect. Input all values as positive amounts. Be certain to enter zero wherever needed. Conrad Playground Supply underwent a restructuring in 2024. The company conducted a thorough internal audit, during which the ollowing facts were discovered. The audit occurred during 2024 before any adjusting entries or closing entries are prepared. a. Additional computers were acquired at the beginning of 2022 and added to the company's office network. The $48,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method. b. Two weeks prior to the audit, the company paid $20,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. c. On December 31,2023 , merchandise inventory was understated by $84,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. d. Two years earlier, the company recorded a 4% stock dividend ( 2,600 common shares, $1 par) as follows: e. At the end of 2023 , the company failed to accrue $116,000 of interest expense that accrued during the last four months of 2023 on bonds payable. The bonds, which were issued at face value, mature in 2028. The following entry was recorded on March 1 , 2024, when the semiannual interest was paid, as well as on September 1 of each year: f. A three-year liability insurance policy was purchased at the beginning of 2023 for $73,800. The full premium was debited to insurance expense at the time. Required: For each error, prepare any journal entry necessary to correct the error, as well as any year-end adjusting entry for 2024 related to the ituation described. (Ignore income taxes.) Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. 1 Record entry necessary for error correction. 2 Record adjusting journal entry for 2024. 3 Record entry necessary for error correction. 4 Record adjusting journal entry for 2024. 5 Record entry necessary for error correction. 6 Record adjusting journal entry for 2024. 7 Record entry necessary for error correction. 8 Record adjusting journal entry for 2024. 9 Record entry necessary for error correction. 10 Record adjusting journal entry for 2024. 11 Record entry necessary for error correction. 12 Record adjusting journal entry for 2024. Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2024 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account. a. Fleming Home Products introduced a new line of commercial awnings in 2023 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 2023 were $3,700,000. Accordingly, warranty expense and a warranty liability of $148,000 were recorded in 2023 . In late 2024, 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 2024 were $4,200,000, and warranty expenditures in 2024 totaled $95,550. b. On December 30, 2020, Rival Industries acquired its office building at a cost of $1,040,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2024 to relocate the company headquarters at the end of 2028 . The vacated office building will have a salvage value at that time of $720,000. c. Hobbs-Barto Merchandising, Incorporated, changed inventory cost methods to LIFO from FIFO at the end of 2024 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2024, is $710,000. d. At the beginning of 2021, the Hoffman Group purchased office equipment at a cost of $352,000. Its 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 1,2024 , the company changed to the straight-line method. e. In November 2022, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2023, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $220,000 in penalties. Accordingly, the following entry was recorded: Late in 2024, a settlement was reached with state authorities to pay a total of $372,000 in penalties. f. At the beginning of 2024, Jantzen Specialties, which uses the sum-of-the-years'-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $467,000. Required: Eor each situation: 1. Identify the type of change. 2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2024 related to the situation described. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2024 related to the situation described. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2024, you discover the following errors related to the 2022 and 2023 financial statements: a. Inventory at 12/31/2022 was understated by $6,000. b. Inventory at 12/31/2023 was overstated by $9,000. c. On 12/31/2023, inventory was purchased for $3,000. The company did not record the purchase until the inventory was paid for early in 2024. At that time, the purchase was recorded by a debit to purchases and a credit to cash. The company uses a periodic inventory system. Required: 1. Assuming that the errors were discovered after the 2023 financial statements were issued, analyze the effect of the errors on 2023 and 2022 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors. Assuming that the errors were discovered after the 2023 financial statements were issued, analyze the effect of the errors on 2023 and 2022 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) Note: Indicate the effect by selecting "O" for Overstated, "U" for Understated and "NE" for No effect. Input all values as positive amounts. Be certain to enter zero wherever needed. Conrad Playground Supply underwent a restructuring in 2024. The company conducted a thorough internal audit, during which the ollowing facts were discovered. The audit occurred during 2024 before any adjusting entries or closing entries are prepared. a. Additional computers were acquired at the beginning of 2022 and added to the company's office network. The $48,000 cost of the computers was inadvertently recorded as maintenance expense. Computers have five-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method. b. Two weeks prior to the audit, the company paid $20,000 for assembly tools and recorded the expenditure as office supplies. The error was discovered a week later. c. On December 31,2023 , merchandise inventory was understated by $84,000 due to a mistake in the physical inventory count. The company uses the periodic inventory system. d. Two years earlier, the company recorded a 4% stock dividend ( 2,600 common shares, $1 par) as follows: e. At the end of 2023 , the company failed to accrue $116,000 of interest expense that accrued during the last four months of 2023 on bonds payable. The bonds, which were issued at face value, mature in 2028. The following entry was recorded on March 1 , 2024, when the semiannual interest was paid, as well as on September 1 of each year: f. A three-year liability insurance policy was purchased at the beginning of 2023 for $73,800. The full premium was debited to insurance expense at the time. Required: For each error, prepare any journal entry necessary to correct the error, as well as any year-end adjusting entry for 2024 related to the ituation described. (Ignore income taxes.) Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. 1 Record entry necessary for error correction. 2 Record adjusting journal entry for 2024. 3 Record entry necessary for error correction. 4 Record adjusting journal entry for 2024. 5 Record entry necessary for error correction. 6 Record adjusting journal entry for 2024. 7 Record entry necessary for error correction. 8 Record adjusting journal entry for 2024. 9 Record entry necessary for error correction. 10 Record adjusting journal entry for 2024. 11 Record entry necessary for error correction. 12 Record adjusting journal entry for 2024