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Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2 0 1 8 before any adjusting entries or closing
Described below are six independent and unrelated situations involving accounting changes. Each change occurs
during before any adjusting entries or closing entries were prepared. Assume the tax rate for each company
is 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 that carry a oneyear warranty
against manufacturer's defects. Based on industry experience, warranty costs were expected to approximate
of sales. Sales of the awnings in were $ Accordingly, warranty expense and a warranty
liability of $ were recorded in In late the company's claims experience was evaluated,
and it was determined that claims were far fewer than expected: of sales rather than Sales of the
awnings in were $ and warranty expenditures in totaled $
b On December Rival Industries acquired its office building at a cost of $ It was depre
ciated on a straightline basis assuming a useful life of years and no salvage value. However, plans were
finalized in to relocate the company headquarters at the end of The vacated office building will
have a salvage value at that time of $
c HobbsBarto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of for
both financial statement and income tax purposes. Under FIFO, the inventory at January is $
d At the beginning of the Hoffman Group purchased office equipment at a cost of $ Its useful
life was estimated to be years with no salvage value. The equipment was depreciated by the sumofthe
years'digits method. On January the company changed to the straightline method.
In November the State of Minnesota filed suit against Huggins Manufacturing Company, seeking pen
alties for violations of clean air laws. When the financial statements were issued in Huggins had not
reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the com
pany would have to pay $ in penalties. Accordingly, the following entry was recorded:
Losslitigation
Liabilitylitigation.
Late in a settlement was reached with state authorities to pay a total of $ in penalties.
f At the beginning of Jantzen Specialties, which uses the sumoftheyears'digits method, changed to thestraightline method for newly acquired buildings and equipment. The change increased current year net earnings by $
Required:
For each situation:
Identify the type of change. change in accounting principle, change in accounting estimate, change in reporting entity, or error correction
Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for related to the situation described.
Briefly describe any other steps that should be taken to appropriately report the situation.
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