In: Accounting
Described below are six independent and unrelated situations
involving accounting changes. Each change occurs during 2021 before
any adjusting entries or closing entries were prepared. Assume the
tax rate for each company is 25% in all years. Any tax effects
should be adjusted through the deferred tax liability
account.
Loss—litigation | 260,000 | |
Liability—litigation | 260,000 | |
Late in 2021, a settlement was reached with state authorities to
pay a total of $416,000 in penalties.
Required:
For each situation:
1. Identify the type of change.
2. Prepare any journal entry necessary as a direct
result of the change, as well as any adjusting entry for 2021
related to the situation described.
Answer:
Part-a:
It is a change in accounting estimate.
1) Record journal entry as a direct result of the change: No entry needed for correction
2) Record adjusting entry for change in warranty:
Part-b
It is a change in accounting estimate.
1) Record journal entry as a direct result of the change: No entry needed for correction
2) Record adjusting entry for depreciation:
Part-c
It is a change in accounting policy from LIFO to FIFO.
1) Record journal entry as a direct result of the change: No entry needed for correction
2) Record adjusting entry for for change in inventory cost method: No entry
Part-d
It is a change in accounting estimate resulting from change in accounting principle.
1) Record journal entry as a direct result of the change: No entry needed for correction
2) Record adjusting entry for depreciation:
Part-e
It is a change in accounting estimate.
1) Record journal entry as a direct result of the change: No entry needed for correction
2) Record adjusting entry for revision of liability:
Part-f
It is a change in accounting principle.
1) Record journal entry as a direct result of the change: No entry needed for correction
2) Record adjusting entry for change in depreciation method from sum-of-the-years’-digits method to straight-line method: No entry required.