1. Martinez Corp. purchased machinery on January 1, 2016 for $ 763,000. Straight-line depreciation is used. At the time management estimated that the machinery would be used over 10 years and would have a residual value of $ 55,000. It is now December 31, 2020 and management has determined that the machines life is now a total of 12 years with no residual value. No adjusting journal entries have been recorded yet for the 2020 year-end.

Identify the type of accounting change and the treatment for this change.

2. Joy Cunningham Co. purchased a machine on January 1, 2017, for $ 418,000. At that time, it was estimated that the machine would have a 10-year life and no residual value. On December 31, 2020, the firms accountant found that the entry for depreciation expense had been omitted in 2018. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation because of a change in the pattern of the way the asset is used, starting with the year 2020. At present, the company uses the sum-of-the-years-digits method for depreciating equipment. Prepare the general journal entries that should be made at December 31, 2020, to record these events. Ignore income tax effects.

3. Marlblestone encountered the following situations during the preparation of its annual financial statements. Identify whether each situation should be considered a change in estimate, a change in policy, or correction of an error. Identify also whether the change should be made retrospectively or prospectively.

4. Matusek Corporation has been experiencing a higher than expected number of warranty claims in the current year, due mainly to less than ideal product design. For this reason, the warranty expense percentage used was changed from 2% to 3% of sales. The warranty expense for the current year was calculated using the new rate of 3% of sales. The controller estimates that if the new rate had been used in the past, an additional $ 110,000 worth of warranty expense would have been recorded.

Does this change require a change in accounting policy?

What journal entry, if any, should Matusek record at the end of the fiscal year ending December 31, 2020?

5. Talbert Inc., which uses a periodic system, changed from the weighted average cost formula to the FIFO cost formula in 2020. The increase in the prior years income before tax as a result of this change is $ 234,800. The tax rate is 30%. Prepare Talberts 2020 journal entry to record the change in accounting policy, assuming that the companys financial statements are reliable and more relevant as a result of the change. Assume that the 2020 year-end balance of inventory has not yet been recorded.