Liabilities and Stockholders' Equity 1. The easiest way to do this problem is to calculate partial year depreciation using both methods: straight line and SYD. 2. Once you have both entries, set up t-accounts for Depreciation and Accumulated Depreciation. In your accounts, use the depreciation from the original (or incorrect) method as the beginning account balances and the depreciation from the updated (or correct) method as the desired ending account balances. What entry would you need to make to change the current, incorrect balances into the desired, correct balances? 3. Remember, if you change an income statement account, there WILL be a tax effect! PPI Co. Multi-Step Income Statement For Year Ended December 31, 2022 Operating Activities Selling Expenses Advertising Expense Miscellaneous Selling Expenses Sales Force Salaries Expense Selling Commissions Expense Shipping Expense Total Selling Expenses Administrative Expenses Consulting and Legal Fees Expense Executive Salaries Expense Depreciation Expense Insurance Expense Miscellaneous Admin. Expenses Office Supplies Expense Utilities Expense Total Administrative Expenses Income from Operations $511,875$31,395$375,375$1,365,000$223,519 $2,507,164 $17,063 $1,194,375 $1,638,000 $235,463 $13,479 $105,788 $204,750 \begin{tabular}{rr} $3,408,918 & $5,916,082 \\ \hline$4,816,674 \end{tabular} Non-Operating Income Rent Revenue Loss on Sale of A/R Interest Expense Income from Continuing Operations before Taxes Income Tax Expense Net Income EPS \begin{tabular}{rr} $85,313 & \\ ($25,799) & \\ ($174,038) & ($114,524) \\ \hline & $4,702,151 \\ & ($1,420,063) \\ \hline & $3,282,087 \\ \hline \hline \end{tabular} $1.06 Ratio Analysis Current Ratio PPI Co. Statement of Cash Flows For Year Ended December 31, 2022 Intermediate 1 FSR Project Part \#1: Receivables Adjusting Journal Entries To record the factoring of A/R to First National Band without recourse Intermediate 1 FSR Project Part \#2: Changing Depreciation Method Goal: To practice changing depreciation method. (See Topic Guides A 28, 29, 42, 43). Information: PPI purchased a new storage facility on May 1, 2022. The new building cost $330,000. A new member of the accounting team recorded depreciation on the new facility using the sum-of-the-years (SYD) method. The manager was impressed with his hard work, since he used the method correctly and even appropriately adjusted for partial year depreciation. However, she had to remind him that PPI uses the straight line method for buildings. Unfortunately, the mistake in method wasn't corrected before the financial statements were created. At the time of the purchase, the operations manager estimated that the new facility would be used for 10 years and would have a $13,900 salvage value. PPI's management would like to know the effect of your adjustment on the following ratios: - Asset Turnover (Net Sales / average total assets) - Current Ratio - ROA Assignment: Calculations 1. Make the appropriate journal entries, if any, to account for the change in depreciation method (including any necessary changes to income tax expense) on the new facility ONLY (the rest of the depreciation was appropriately recorded). 2. Make any necessary changes to the financial statements. Critical Thinking 3. Calculate each of the required ratios using the original values (before any changes) and the updated values (after your changes). 4. In practice, most companies use the straight-line depreciation method, typically without any salvage value. How do you think companies justify this decision to their owners and creditors? Do you agree with using only this one method? Defend your answer. 5. After looking over the numbers, you believe that would be better off following the more conservative option of reporting this asset using an accelerated depreciation method (SYD or DDB). Provide two (2) arguments that you could use to convince the management team that your plan is the most appropriate