During the 2025 year-end audit, the following items come to your attention: 1. Small bought equipment on January 1, 2022 for $490,000 with a $40,000 estimated salvage value and a six-year life. The company debited an expense account and credited Cash on the purchase date for the entire cost of the asset. (Straight-line method) 2. In 2025, Small changed from the straight-line method of depreciating its building to the double-declining balance method. The following computations present depreciation on both bases: 3. Small has a parking lot with a cost of $45,000 that was purchased in 2021 . At the time, Small estimated that its salvage value would be $0 and its useful life would be 10 years. Prior to depreciating the asset in 2025 , Small determined that the parking lot only had a remaining useful life of 2 years. Answer the following questions using the above information: 1) What is the effect of the error described in Item 1 on the 2025 financial statements (i.e. what accounts are overstated or understated)? 2) Prepare the journal entry to correct the books for the error described in Item 1. 3) Compute net income for 20232025. 4) Assume that the beginning retained earnings balance (unadjusted) for 2023 was $1,260,000. If 2023 is included in the current year's comparative statements, what amount should be shown for 2023's retained earnings (adjusted) on the current year's statements? 5) What kind of accounting change is Item 2 ? How should it be accounted for (retrospectively, prospectively, etc.)? What about Item 3 ? Calculate the appropriate 2025 depreciation to be used for Item 3