Question

Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2019, and 2020. reported the following amount and subtotals ($ in millions)

2019 2020

Assets $800 880

Liabilities 360 430

Shareholders' Equity 440 450

Net Income 156 181

In 2021, the following situation occurred or came to light

A. Internal auditors discovered that ending inventories reported on the financial statements the two previous years were mistated due to faulty internal controls. The errors were in the following amounts.

2019 inventory overstated by $12.6 million

2020 inventory understated by $ 10.6 million

B. A liability was accrued in 2019 for a probable payment of $8.2 million in connection with a lawsuit ultimately settled in December 2021 for $ 4.6 million.

c. A patent costing $216 million at the beginning of 2019, expected to benefit operations for a total of six years has not been amortized since acquired.

D. Whaley's conveyor equipment was depreciated by the sum of -the -years- digits(SYD) basic since it was acquired at the beginning of 2019 at a cost of $ 390 million. it has an expected useful life of five years and no expected residual value. At the beginning of 2021. Whaley decided to switch to straight-line depreciation

Required

for each situation

1. Prepare any journal entry necessary as a direct result of the change or error correction, as well as any adjusting entry for 2021 related to the situation described. ( ignore tax effect)

2. Determine the amounts to be reported for each of the five items shown above from the 2019 and 2020 financial statements when those amounts are reported again in the 2019-2021 comparative financial statements.

Expenses

Answer 1