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Problem 2 0 - 1 2 ( Algo ) Accounting changes and error correction; seven situations; tax effects ignored [ LO 2 0 - 1

Problem 20-12(Algo) Accounting changes and error correction; seven situations; tax effects ignored
[LO20-1,20-2,20-3,20-4,20-6]
Williams-Santana Incorporated is a manufacturer of high-tech industrial parts that was started in 2012 by two talented engineers with
little business training. In 2024, the company was acquired by one of its major customers. As part of an internal audit, the following
facts were discovered. The audit occurred during 2024 before any adjusting entries or closing entries were prepared.
a. A five-year casualty insurance policy was purchased at the beginning of 2022 for $30,500. The full amount was debited to
insurance expense at the time.
b. Effective January 1,2024, the company changed the salvage value used in calculating depreciation for its office building. The
building cost $574,000 on December 29,2013, and has been depreciated on a straight-line basis assuming a useful life of 40
years and a salvage value of $110,000. Declining real estate values in the area indicate that the salvage value will be no more
than $27,500.
c. On December 31,2023, merchandise inventory was overstated by $20,500 due to a mistake in the physical inventory count
using the periodic inventory system.
d. The company changed inventory cost methods to FIFO from LIFO at the end of 2024 for both financial statement and income tax
purposes. The change will cause a $915,000 increase in the beginning inventory on January 1,2025.
e. At the end of 2023, the company failed to accrue $14,600 of sales commissions earned by employees during 2023. The
expense was recorded when the commissions were paid in early 2024.
f. At the beginning of 2022, the company purchased a machine at a cost of $630,000. Its useful life was estimated to be 10 years
with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December
31,2023, was $403,200. On January 1,2024, the company changed to the straight-line method.
g. Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.80% is a
better indication of the actual cost. Management effects the change in 2024. Credit sales for 2024 are $3,100,000; in 2023 they
were $2,800,000.
Required:
For each situation:
Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. For
accounting errors, choose "Not applicable".
Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2024
related to the situation described. (Ignore tax effects.)
Complete this question by entering your answers in the tabs below.
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