Whaley Distributors is a wholesale distributor of electronic components. Financi

Question

Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2014 and 2015, reported the following amounts and subtotals (S in millions): Shareholders'Net Equity $365 375 Assets Liabilities Income Expenses 2014 $650 2015 730 $285 355 $165 185 166 In 2016 the following situations occurred or came to light a. Internal auditors discovered that ending inventories reported on the financial statements the two previous years were misstated due to faulty internal controls. The errors were in the following amounts 2014 inventory Overstated by 11.1 million 2015 inventory Understated by S 9.1 million b. A liability was accrued in 2014 for a probable payment of $5.2 mllion in connection with a lawsuit c. Apatent costing $12.6 million at the beginning of 2014, expected to benefit operations for a total of six d. Whaley's conveyer equipment was depreciated by the sum-of-the-years'-digits (SYD) basis since it was ultimately settled in December 2016 for $3.1 million years, has not been amortized since acquired acquired at the beginning of 2014 at a cost of $16.5 million. It has an expected useful life of five years and no expected residual value. At the beginning of 2016, Whaley decided to switch to straight-line depreciation.

Explanation / Answer

Assets Liabilies shareholders Equity Net Income Expenses 2014 $650 $285 $365 $165 $141 2014 Inventory ($11.1) 0 ($11.1) ($11.1) $11.1 Loss contingency 0 0 0 0 0 Patent Amortization ($2.1) 0 ($2.1) ($2.1) $2.1 Depriciation 0 0 0 0 0 Total $636.8 $285 $351.8 $151.8 $127.8 2015 $730 $355 $375 $185 $166 2014 Inventory 0 0 0 $11.1 ($11.1) 2015 Inventory $9.1 0 $9.1 $9.1 ($9.1) Loss contingency 0 0 0 0 0 Patent Amortization ($4.2) 0 ($4.2) ($2.1) $2.1 Depriciation 0 0 0 0 0 Total $734.9 $355 $379.9 $203.1 $147.9

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