Question 7

1. Molina Companys reported net incomes for 2018 and the previous two years are presented

below.

2018 2017 2016

$105,000 $95,000 $70,000

2018s net income was properly determined after giving effect to the following accounting changes, error corrections, etc. which took place during the year. The incomes for 2016 and 2017 do not take these items into account and are stated at the amounts determined in those years. Ignore income taxes.

Instructions

(a) For each of the six accounting changes, errors, or prior period adjustment situations described below, prepare the journal entry or entries Molina Company should record during 2018. If no entry is required, write none.

(b) After recording the situation in part (a) above, prepare the year-end adjusting entry for December 31, 2018. If no entry, write none.

1. Early in 2018, Molina determined that equipment purchased in January, 2016 at a cost of $1,290,000, with an estimated life of 5 years and salvage value of $90,000 is now estimated to continue in use until December 31, 2022 and will have a $30,000 salvage value. Molina recorded its 2018 depreciation at the end of 2018.

(a)

(b)

2. Molina determined that it had understated its depreciation by $20,000 in 2017 owing to the fact that an adjusting entry did not get recorded.

(a)

(b)

3. Molina bought a truck January 1, 2015 for $80,000 with a $8,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date. The truck is expected to be traded at the end of 2020. Molina uses straight-line depreciation for its trucks.

(a)

(b)

(a)

(b)

2. Molina determined that it had understated its depreciation by $20,000 in 2017 owing to the fact that an adjusting entry did not get recorded.

(a)

(b)

3. Molina bought a truck January 1, 2015 for $80,000 with a $8,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date. The truck is expected to be traded at the end of 2020. Molina uses straight-line depreciation for its trucks.

(a)

(b)

(a)

(b)

2. Molina determined that it had understated its depreciation by $20,000 in 2017 owing to the fact that an adjusting entry did not get recorded.

(a)

(b)

3. Molina bought a truck January 1, 2015 for $80,000 with a $8,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date. The truck is expected to be traded at the end of 2020. Molina uses straight-line depreciation for its trucks.

(a)

(b)