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Problem 2 0 - 8 ( Static ) Accounting changes; six situations [ LO 2 0 - 1 , 2 0 - 3 , 2
Problem Static Accounting changes; six situations LO
Described below are six independent and unrelated situations involving accounting changes. Each change occurs during before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 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 that carry a oneyear warranty against manufacturer's defects. Based on industry experience, warranty costs were expected to approximate of sales. Sales of the awnings in were $ Accordingly, warranty expense and a warranty liability of $ were recorded in In late the company's claims experience was evaluated, and it was determined that claims were far fewer than expected: of sales rather than Sales of the awnings in were $ and warranty expenditures in totaled $
b On December Rival Industries acquired its office building at a cost of $ It was depreciated on a straightline basis assuming a useful life of years and no salvage value. However, plans were finalized in to relocate the company headquarters at the end of The vacated office building will have a salvage value at that time of $
c HobbsBarto Merchandising, Incorporated, changed inventory cost methods to LIFO from FIFO at the end of for both financial statement and income tax purposes. Under FIFO, the inventory at January is $
d At the beginning of the Hoffman Group purchased office equipment at a cost of $ Its useful life was estimated to be years with no salvage value. The equipment was depreciated by the sumoftheyears'digits method. On January the company changed to the straightline method.
e In November 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 Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $ in penalties. Accordingly, the following entry was recorded:
tableAccount Name,Debit,CreditLosslitigation,Liabilitylitigation,,
Late in a settlement was reached with state authorities to pay a total of $ in penalties.
f At the beginning of Jantzen Specialties, which uses the sumoftheyears'digits method, changed to the straightline method for newly acquired buildings and equipment. The change increased current year net earnings by $
Required:
For each situation:
Identify the type of change.
Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for related to the situation described.
Complete this question by entering your answers in the tabs below.
Please double check all work and answer problems completely and correctly. Will upvote if accurately answered! Only "Required needs to be completed. Here are the journal entry notes needed to be solved. Starting with record adjusting entry for change in warranty. Record adjusting entry for depreciation. Record adjusting entry for depreciation. Record journal entry as a direct result of the change.
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