Reference no: EM131247704

Bristol Corporation is a manufacturer of high-tech industrial parts that was started in 2003 by two talented engineers with little business training. In 2015, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2015 before any adjusting entries or closing entries were prepared.

a. A five-year casualty insurance policy was purchased at the beginning of 2013 for $35,000. The full amount was debited to insurance expense at the time.

b. Effective January 1, 2015, the company changed the salvage value used in calculating depreciation for its office building. The building cost $600,000 on December 29, 2004, and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $100,000. Declining real estate values in the area indicate that the salvage value will be no more than $25,000.

c. On December 31, 2014, merchandise inventory was overstated by $25,000 due to a mistake in the physical inventory count using the periodic inventory system.

d. The company changed inventory cost methods to FIFO from LIFO at the end of 2015 for both financial statement and income tax purposes. The change will cause a $960,000 increase in the beginning inventory at January 1, 2016.

e. At the end of 2014, the company failed to accrue $15,500 of sales commissions earned by employees during 2014. The expense was recorded when the commissions were paid in early 2015.

f. At the beginning of 2013, the company purchased a machine at a cost of $720,000. It’s useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double-declining balance method. It’s carrying amount on December 31, 2014, was $460,800. During the audit, management decided to change to the straight-line method.

g. Bad debt expense is determined each year as 1% of credit sales. Actual collection experience of recent years indicates that 0.75% is a better indication of uncollectible accounts. Management made the change in 2015. Credit sales for 2015 were $4,000,000; in 2014 they were $3,700,000.

REQUIRED: For each of the above items, identify whether it represents an accounting change or an error. If an accounting change, identify the type of change. Also, prepare any journal entry necessary as a result of the change or error correction (you may ignore taxes). (If no journal entry is required, please specifically state that.) Finally, also prepare any adjusting entry required for 2015 related to the situation described.