Reference no: EM133078224

Question -

Part A - Stacey Corporation had been depreciating equipment over a 10-year useful life on a straight-line basis. The equipment, which cost $24,000 and has an estimated residual value of $6,000 was purchased on January 1, 2016. On the basis of experience since acquisition, management has decided in 2020 to depreciate it over a total of 14 years, instead of 10 years, with no change in the estimated residual value. The change is to be effective on January 1, 2020.

Required - Prepare the entry, or entries, to appropriately reflect the change (if any) and to record the depreciation expense for 2020, the year of the change.

Part B - Holmes Limited purchases a delivery truck for $14,000 on January 1, 2019. Holmes expects to use the truck for only two years and then sell it for $4,000. The accountant is instructed to use straight-line depreciation but neglects to record any depreciation in 2019. Rather, the accountant charges the entire cost to delivery expense in 2019. The company controller discovers the error late in 2020.

Required - Provide the 2020 entries to record depreciation and the error correction. Assume a tax rate of 30%.

Part C - In 2020, Eagle Corp. , a public company, has provided the following information: Sales for 2019 included $16,500 that had been received in cash during 2019, but for which the related products were delivered in 2020. Title did not pass to the purchaser until 2020.

Ending inventory on December 31, 2019, was understated by $5,640. The December 31, 2020 ending inventory has not been adjusted to the Inventory account. Assume that Eagle has a periodic inventory system, and that no adjustment has been made to the opening balance of the Inventory account.

In the past, Eagle recognized bad debt expense equal to 2% of sales. After careful review, it has been decided that 1.5% is more appropriate for 2020. Eagle would have reported $19,800 of bad debt expense under the old rate of 2% for 2020. No entry has yet been made in 2020 for bad debt expense.

Required - Prepare the journal entry(ies) that Eagle needs to make to correct or adjust the accounts, assuming that the accounts for 2020 have not yet been closed. Ignore income tax.