Reference no: EM133176961

Question - The following items were noted in the process of preparing the financial statements for Marathon Company for the year ended October 31, 2021.

a. On February 1, 2018, Marathon Company purchased a trading name for $72,971. The trade name is being amortized on a straight-line basis with no residual value over its legal life of 10 years. At the beginning of the 2021 fiscal year, Marathon Company determined that the economic bene?ts of the trade name would not last longer than 8 years from the date of acquisition.

b. At the beginning of the 2021 fiscal year, management decided to change from the future income taxes method to the income taxes payable method. The balance in the future income tax liability account on October 31, 2020 was $22,463.

c. On October 15, 2020, fully depreciated machinery with a cost of $258,946 was sold for $10,225. The sale was not recorded until the 2021 fiscal year. The residual value of the equipment was $15,464.

d. Marathon company acquired land and building in the amount of $864,335 on January 1, 2017. The entire cost was recorded in the Building account, even though $216,080 of the purchase price should have been recorded in the Land account. Depreciation has been recorded on the entire $864,335 cost since the property was acquired. The building is being depreciated on a straight-line basis over 25 years, with an estimated residual value of zero.

Required -

1. For each of the above items, indicate whether it is a change in accounting estimate, change in accounting policy, or an error that needs to be corrected.

2. Assume that the books are closed for all years other than the 2021 fiscal year. Prepare any journal entries required to account for the effect of each of the above items on years prior to 2021. If you think no entry is required, write (none). Ignore income taxes.

3. For part (b), calculate the amortization expense for the 2021 year on the trade name.