Reference no: EM132611088

Question - You joined recently as the Chief Accountant of BIG Co. As part of your preparation for the Dec 31 2020 year-end audit, the following items come to your attention:

Part a - Big Co bought a truck on January 1, 2017 for $ 98,000 cash, with an $ 8,000 estimated residual value and a six-year life. The company debited an expense account for the entire cost of the asset. Big co uses straight-line depreciation for all trucks.

Required - Prepare the general journal entry required to correct the books for the situation of this problem, assuming that the books have not been closed for 2020.

Part b - Most of the furniture and fixtures owned by BIG Co are depreciated over a 12-year life and depreciation expense this year was $600,000. You CFO wants the useful life revised to 8 years. "Our original estimated were not accurate we need to adjust to reflect reality and the matching principle " . This would result in a revised depreciation expense of $900,000 and a useful life of anywhere from 8 to 12 years.

Required - Prepare the proper Journal entry to reflect the adjustment.

Part c - On Jan 10, 2021 a flood cause the operations to stop for two weeks . Big Co recovered thereafter and submitted the Insurance claim . Management is not sure how to account for the transaction in 2020 year end.

Required - Assist BIG Co in properly reporting this transaction.

Part d - In January 2020 Management decided to change its Inventory Accounting Policy from FIFO to Weighted Average

Required - Assist BIG Co in properly reporting this transaction.