Problem 1 and 2

II" Metro by T-Mobile '5' 12:06 AM 4 E]. B ezto.mheducation.com _ 1, Award: 16.66 points The Cecil-Booker Vending Company changed its method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2021. At December 31, 2020, inventories were $121,000 (average cost basis) and were $125,000 a year earlier. Cecil-Booker's accountants determined that the inventories would have totaled $157,000 at December 31, 2020, and $162,000 at December 31, 2019, if determined on a FIFO basis. Atax rate of 25% is in effect for all years. One hundred thousand common shares were outstanding each year. Income from continuing operations was $410,000 in 2020 and $535,000 in 2021. There were no discontinued operations either year. Required: 1. Prepare the journal entry at January 1, 2021, to record the change in accounting principle. (All tax effects should be reected in the deferred tax liability account.) 2. Prepare the 20212020 comparative income statements beginning with income from continuing operations (adjusted for any revisions). Include per share amounts. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the journal entry at January 1, 2021, to record the change in accounting principle. (All tax effects should be reected in the deferred tax liability account.) (If no entry is required for a transaction/event, select \"No journal entry required\" in the rst account eld.) View transaction list Journal entry worksheet Show less' Record the change In accountlng principle. Note: Enter debit: before credits. January 01. 2021 Record entry Clear entry View general journal Required 2 > References .III Metro by TMobile a? 12:06 AM 4 E]: B ezto.mheducation.com Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% 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 2020 that carry a one-year warranty against manufacturer's defects. Based on industry experience, warranty costs were expected to approximate 2% of sales. Sales of the awnings in 2020 were $3,600,000. Accordingly, warranty expense and a warranty liability of $72,000 were recorded in 2020. In late 2021, the company's claims experience was evaluated, and it was determined that claims were far fewer than expected: 1% of sales rather than 2%. Sales of the awnings in 2021 were $4,100,000, and warranty expenditures in 2021 totaled $93,275. b. On December 30, 2017, Rival Industries acquired its ofce building at a cost of $1,020,000. It was depreciated on a straightline basis assuming a useful life of 40 years and no salvage value. However, plans were nalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $710,000. c. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both nancial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $700,000. d. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $341 ,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years'-digits method. On January 1, 2021, the company changed to the straight-line method. e. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $210,000 in penalties. Accordingly, the following entry was recorded: Losslitigation 210,000 Liabilitylitigation 210,000 Late in 2021, a settlement was reached with state authorities to pay a total of $361,000 in penalties. f. At the beginning of 2021, Jantzen Specialties, which uses the sumofthe years'-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $456,000. Required: For each situation: 1. Identify the type of change. 2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described. Camplete this question by entering your answers in the tabs below. Required 1 Required 2 Identify the type of change