Reference no: EM132584811

As at December 31, 2020, Kendrick Corporation is having its financial statements audited for the first time ever. The auditor has found the following items that might have an effect on previous years.

Question 1: Prepare the necessary journal entries to record each of the changes or errors for following independent situations . The books for 2020 have been adjusted but not closed. Ignore income tax effects.

• During 2020, Kendrick changed from the double-declining-balance method for its building to the straight-line method because the company thinks the straight-line method now more closely follows the benefits received from using the assets. The current year depreciation was calculated using the new method following straight-line depreciation. In case the following information was needed, the auditor provided calculations that present depreciation on both bases. The building had originally cost $1.03 million when purchased at the beginning of 2018 and has a residual value of $103,000. It is depreciated over 20 years. The original estimates of useful life and residual value are still accurate. HINT : only three accounts are required for this entry.

                                       2020               2019             2018

Straight-line                 $46,350      $46,350       $46,350

Double-declining               83,430       92,700     103,000

• Prior to 2020, development costs were expensed immediately because they were immaterial. Due to an increase in development phase projects, development costs have now become material and management has decided to capitalize and depreciate them over three years. The development costs meet all six specific conditions for capitalization of development phase costs. Amounts expensed in 2017, 2018, and 2019 were $300, $600, and $1,000, respectively. During 2020, $4,800 was spent and the amount was debited to Deferred Development Costs (an asset account). HINT : only two accounts are required for this entry.