XYZ Ltd.s unadjusted net income for the past 3 years: 2018 2017 2016

$170,000 $165,000 $60,000

During the 2018 year-end audit for XYZ Ltd, you discovered the following:

1. XYZ bought a machine on January 1, 2015 for $100,000 with a $20,000 estimated residual value and an 8-year life. The company mistakenly debited Repairs Expense and correctly credited Cash on the purchase date for the entire cost of this asset. Assume XYZ would have used straight-line method amortization for machinery.

2. During 2018, XYZ changed its method of amortizing its manufacturing plant to the straight-line method from the double declining-balance method (assume this is a change in policy). Amortization expense was recorded in 2018 under the old method. The following calculations present amortization expense on both bases:

2018 2017 2016

Double declining-balance amortization 25,000 30,000 35,000

Straight-line amortization $16,000 $16,000 $16,000

(a) Prepare the general journal entry necessary to correct XYZ 2017 books for the above error transaction #1 (machinery expensed) assuming that the books have not been closed for the current year.

(b) Prepare the general journal entry necessary to correct XYZ's books for the above change in policy transaction #2 assuming that the books have not been closed for the current year.

(c) Recalculate the revised net income for each of the years 2016 thru 2018 in accordance with generally accepted accounting principles starting before the cumulative effect of accounting changes. Ignore income tax effects.

2018 2017 2016

Income before cumulative effect of accounting changes $170,000 $165,000 $ 60,000