Purpose any journal entry required as a direct result

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Reference no: EM135860

Williams-Santana, Inc., is a manufacturer of high-tech industrial parts that was initiated in 2001 by two talented engineers with little business training. In 2013, the company was acquired by one of its main customers. As part of an internal audit, the given facts were discovered. The audit occurred in 2013 before any closing entries or adjusting entries were prepared.

a. A five-year casualty insurance policy was purchased at the starting of 2011 for $32,000. The full amount was debited to insurance expense at the time.

b. Effective 1^st January, 2013, the company changed the salvage value used in evaluating depreciation for its office building. The building cost $586,000 on 29^th December, 2002, and has been depreciated on a straight-line basis assuming a needful life of 40 years and a salvage value of $110,000. Declining real estate values in the area shown that the salvage value will be no more than $27,500.

c. On 31^st December, 2012, merchandise inventory was overstated by $22,000 due to a mistake in the physical inventory count using the periodic inventory system.

d. The company changed inventory cost techniques to FIFO from LIFO at the end of 2013 for both financial statement and income tax purposes. The change may cause a $930,000 increase in the starting inventory at 1^st January, 2014.

e. At the end of 2012, the company failed to get $14,900 of sales commissions earned by employees during 2012. The expense was recorded when the commissions were paid in early 2013.

f. At the starting of 2011, the company purchased a machine at a cost of $660,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double-declining balance method. Its carrying amount on 31^st December 2012 was $422,400. On 1^st January, 2013, the company changed to the straight-line method.

g. Warranty expense is evaluated each year as 1 percent of sales. Actual payment experience of recent years shows that 0.80% is a better indication of the actual cost. Management effects the change in 2013. Credit sales for 2013 are $3,400,000; in 2012 they were $3,100,000.

Purpose any journal entry required as a direct result of the change or error correction as well as any adjusting entry for 2013 related to the situation described.

Reference no: EM135860

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