The accountant preparing the income statement for Sandhill, Inc. had some doubts about the appropriate accounting treatment of the six items listed below during the fiscal year ending December 31, 2025. Assume a tax rate of 20 percent. 1. 2. 3. 4. 5. 6. Office equipment purchased on January 1, 2025 for $69,000 was incorrectly charged to Supplies Expense at the time of purchase. The office equipment has an estimated three-year service life with no expected salvage value. Sandhill uses the straight-line method to depreciate office equipment for financial reporting purposes. This error has not been corrected. The corporation disposed of its sporting goods division during 2025. This disposal meets the criteria for discontinued operations. The division correctly calculated income from operating this division of $116,000 before taxes and a loss of $12,300 before taxes on the disposal of the division. The income from the division is included in income from operations and the loss is included in other losses and expenses. The company recorded advances of $10,600 to employees made December 31, 2025 as Salaries and Wages Expense. Dividends paid of $10,600 during 2025 were recorded as an operating expense. In 2025, Sandhill changed its method of accounting for inventory from the first-in-first-out method to the average cost method. Inventory in 2025 was correctly recorded using the average-cost method. The new inventory method would have resulted in an additional $138,000 of cost of goods sold (before taxes) being reported on prior years' income statement. On January 1, 2021, Sandhill bought a building that cost $84,700, had an estimated useful life of ten years, and had a salvage value of $8,100. Sandhill uses the straight-line depreciation method to depreciate the building. In 2025, it was estimated that the remaining useful life was eight years and the salvage value was zero. Depreciation expense reported on the 2025 income statement was correctly calculated based on the new estimates. No adjustment for prior years' depreciation estimates was made. For each item, record corrections to income from continuing operations before taxes, if any. (If there is no effect then please enter O.) No. 1. 2. Description Office equipment purchased on January 1, 2025 for $69,000 was incorrectly charged to Supplies Expense at the time of purchase. The office equipment has an estimated three-year service life with no expected salvage value. Sandhill uses the straight-line method to depreciate office equipment for financial reporting purposes. This error has not been recorded. The corporation disposed of its sporting goods division during 2025. This disposal meets the criteria for discontinued operations. The division correctly calculated income from operating this division of $116,000 before taxes and a loss of $12,300 before taxes on the disposal of the division. The income from the division is included in income from operations and the loss is included in other losses and expenses. $ Increase to Income from Continuing Operations before taxes $ 3. The company recorded advances of $10,600 to employees made December 31, 2025 as Salaries and Wages Expense. $ 10,600 4. Dividends paid of $10,600 during 2025 were recorded as an operating expense. $ 10,600 5. In 2025, Sandhill changed its method of accounting for inventory from the first-in- first-out method to the average cost method. Inventory in 2025 was correctly recorded using the average cost method. The new inventory method would have resulted in an additional $138,000 of cost of goods sold (before taxes) being reported on prior years' income statement. $ 4. 5. 6. Dividends paid of $10,600 during 2025 were recorded as an operating expense. In 2025, Sandhill changed its method of accounting for inventory from the first-in- first-out method to the average cost method. Inventory in 2025 was correctly recorded using the average cost method. The new inventory method would have resulted in an additional $138,000 of cost of goods sold (before taxes) being reported on prior years' income statement. On January 1, 2021, Sandhill bought a building that cost $84,700, had an estimated useful life of ten years, and had a salvage value of $8,100. Sandhill uses the straight-line depreciation method to depreciate the building. In 2025, it was estimated that the remaining useful life was eight years and the salvage value was zero. Depreciation expense reported on the 2025 income statement was correctly calculated based on the new estimates. No adjustment for prior years' depreciation estimates was made. $ $ 10,600