Problem 20-14 Errors; change in estimate; change in principle; restatement of previous financial statements (LO20-1, 20-3, 20-4, 20-6) Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2016 and 2017, reported the following amounts and subtotals ($ in millions): 2016 2017 Assets Liabilities $700 $310 780 380 Shareholders' Equity $390 400 Net Income $190 210 Expenses $146 171 In 2018 the following situations occurred or came to light: a. Internal auditors discovered that ending inventories reported on the financial statements the two previous years were misstated due to faulty internal controls. The errors were in the following amounts: 2016 inventory 2017 inventory Overstated by Understated by $11,6 million $ 9.6 million b. A liability was accrued in 2016 for a probable payment of $6.2 million in connection with a lawsuit ultimately settled in December 2018 for $3.6 million. C. A patent costing $15.6 million at the beginning of 2016, expected to benefit operations for a total of six years, has not been amortized since acquired. d. Whaley's conveyer equipment was depreciated by the sum-of-the-years-digits (SYD) basis since it was acquired at the beginning of 2016 at a cost of $24.0 million. It has an expected useful life of five years and no expected residual value. At the beginning of 2018, Whaley decided to switch to straight-line depreciation. Required: For each situation: 1. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2018 related to the situation described. (Ignore tax effects.) 2. Determine the amounts to be reported for each of the five items shown below from the 2016 and 2017 financial statements when those amounts are reported again in the 2016-2018 comparative financial statements. Determine the amounts to be reported for each of the five items shown below from the 2016 and 2017 financial statements when those amounts are reported again in the 2016-2018 comparative financial statements. (Do not round Intermediate calculations. Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5)) Show less Assets Liabilities Expenses. $ $ 2016 2016 inventory Loss contingency Patent amortization Depreciation 700.0 (11.6) 0.0 (2.6) Net Income S 190,0 (11.6) 0.0 (2.61 146.0 11.6 0.0 2.6 0.0 0.0 0.0 685.8 175.8 Shareholders Equity $ 390.0 (11.6) 0.0 (2.6) 0.0 $ 375 8 400.0 0.0 9.6 (5.2) 0.0 X 0.0 $ 404.4 S 310.0 0.00 0.0 0.0 0.0 3100 380.0 0.0 0.00 0.00 0.00 0.0 380.0 210.0 2017 2016 inventory 2017 inventory Loss contingency Patent amortization Depreciation 780.0 0.0 9.6 (5.2) 0.0 X 0.0 784.4 OOOOoooo oooooooo 11.6 OOOOOOOOO 9.6 (2.6) 0.0 X 0.0 228.6 0.0 152.4 S $ $ Required 1 Required 2 Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2018 related to the situation described. (Ignore tax effects.) (if no entry is required for a transaction/event, select "No journal entry required in the first account field. Enter your answers in millions rounded to 1 decimal place ce. 5.500.000 should be entered as 5.5)) Show less No transaction a(1) Credit General Journal Inventory Retained earings Debit 9.6 9.6 a(2) No journal entry required b(1) Liability litigation Gain-litigation Cash b(2) No journal entry required (1) 6.0 X Retained earnings Patent c(2) 30 X Amortization expense Patent d(1) No journal entry required d(2) Depreciation expense Accumulated depreciation Required 2 >
