Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was

ID: 2372786 • Letter: W

Question

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was started in 2001 by two talented engineers with little business training. In 2013, 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 2013 before any adjusting entries or closing entries were prepared.

A five-year casualty insurance policy was purchased at the beginning of 2011 for $35,000. The full amount was debited to insurance expense at the time.

Effective January 1, 2013, the company changed the salvage value used in calculating depreciation for its office building. The building cost $600,000 on December 29, 2002, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.

On December 31, 2012, merchandise inventory was overstated by $25,000 due to a mistake in the physical inventory count using the periodic inventory system.

The company changed inventory cost methods to FIFO from LIFO at the end of 2013 for both financial statement and income tax purposes. The change will cause a $960,000 increase in the beginning inventory at January 1, 2014.

At the beginning of 2011, the company purchased a machine at a cost of $720,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double-declining balance method. Its carrying amount on December 31, 2012, was $460,800. On January 1, 2013, the company changed to the straight-line method.

Warranty expense is determined each year as 1% of sales. Actual payment experience of recent years indicates that 0.75% is a better indication of the actual cost. Management effects the change in 2013. Credit sales for 2013 are $4,000,000; in 2012 they were $3,700,000.

Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change.

Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2013 related to the situation described. (Ignore tax effects.)

Explanation / Answer

a.)
error
prepaid insurance.....................................35500
cash..............................................................................35500

b.) accounting change
BV now = 614000 - (614000-110000)/4 = 488000
depreciation now = (488000-27500)/30 = 15350

Depreciation expense................................15350
depreciation.....................................................................15350

c.) error
inventory.........................................................................25500
retained earning.......................................25500

d.) accounting change
inventory................................................965000
retained earning.................................................................965000

e.)
accrude expense.......................................15600
cash................................................................................15600

f.) accounting change
now depreciation = 467200/8 = 58400

depreciation expense...............................58400
depreciation.....................................................................58400

g.) accounting change
warranty expense..................................328000
warranty........................................................................32800

Navigate

Williams, Inc., has sales of $25,300, costs of $9,100, depreciation expense of $

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was

Question

Explanation / Answer

Related Questions

Navigate