Williams-Santana Inc. is a manufacturer of high-tech industrial parts that was started in 2009 by two talented engineers with little business training. In 2021, 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 2021 before any adjusting entries or closing entries were prepared. a. A five-year casualty insurance policy was purchased at the beginning of 2019 for $37,000. The full amount was debited to insurance expense at the time. b. Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its office building. The building cost $626,000 on December 29, 2010, 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, 2020, merchandise inventory was overstated by $27,000 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 2021 for both financial statement and income tax purposes. The change will cause a $980,000 increase in the beginning inventory at January 1, 2022. e. At the end of 2020, the company failed to accrue $15,900 of sales commissions earned by employees during 2020. The expense was recorded when the commissions were paid in early 2021. At the beginning of 2019, the company purchased a machine at a cost of $760,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double-declining balanke method. Its book value on December 31, 2020, was $486,400. On January 1, 2021, the company changed to the straight-line method. 9. 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 2021. Credit sales for 2021 are $4,400,000; in 2020 they were $4.100.000 Event a b. C. Type of change An error Not applicable An accounting change Change in estimate An error Not applicable An accounting change Change in accounting principle An error Change in reporting entity An accounting change Not applicable An accounting change Change in estimate d. e. f. 9 No Transaction General Journal 1 a(1) Debit Credit Prepaid insurance Retained earnings 22,200 22,200 2 a(2) Insurance expense Prepaid insurance 7,400 7,400 3 (1) No journal entry required 4 b(2) Depreciation expense Accumulated depreciation e 15,650 15,650 5 c(1) Retained earnings Inventory 27.000 27,000 6 c(2) No journal entry required 7 d(1) Inventory Retained earnings 980,000 SIS 980,000 8 d(2) No journal entry required 7 d(1) Inventory Retained earnings 980.000 980,000 8 d(2) No journal entry required 9 e(1) Retained earnings Compensation expense 15,900 15.900 10 e(2) No journal entry required 11 No journal entry required 12 f(2) Depreciation expense Accumulated depreciation 60.750 60.750 13 g(1) No journal entry required 14 9(2) Warranty expense Warranty liability 328,000 328,000 X ents an accounting change or an error. If an accounting change, identify the type of cl accounting errors, choose "Not applicable". Event a b. c. An error An accounting change An error An accounting change (An error 'An accounting change 'An accounting change Type of change Not applicable Change in estimate Not applicable Change in accounting principle Change in reporting entity d. e. f. g Change in accounting principle Change in estimate Change in estimate resulting from a change in accounting principle Change in reporting entity Not applicable