Example $3.$ Hedgehog Company presents you with the following information for the years $2022$ and

$2023$:

In $2024,$ the company's internal auditors discovered the following:

$($a$)$ The company's ending inventory was recorded incorrectly in $2022$ and $2023.$

a$.$ In $2022$ it was overstated by $$15,000.$

b$.$ In $2023$ it was understated by $$11,000.$

$($b$)$ In $2022,$ the company estimated a future legal settlement in the amount of $$48,000$ and

accrued a contingency. In $2024,$ the lawsuit was settled for $$30,000.$

$($c$)$ The company acquired real estate for $$100,000.$ It allocated $$40,000$ to land and $$60,000$ to

buildings which were depreciated using SL depreciation, no salvage value and a useful life

of $30$ years. The allocation should have been $$50,000$ to land and $$50,000$ to buildings. Tax

depreciation is also SL but should be for $27$ years.

$($d$)$ Equipment purchased for $$10,000$ in $2023$ was depreciated double declining balance, no

salvage value and a useful life of $8$ years. In $2024,$ it decided to change to SL depreciation

and a useful life of $12$ years.

Determine for each item $($a$)$ through $($d$)$ whether it is a change in principle, a change in estimate

or whether an error correction is required. Prepare all journal entries required. Also determine

how each would affect the financial statements for the years $2022$ and $2023$ for the potential

restatement in $2024.$