A certain business owns a piece of machinery used in manufacturing. In June 2022, after the 2021 financial statements were published, the company realized that the machine’s useful life was 10 years from that date, not seven years as originally estimated. Explain in your own words why it is not appropriate for the company to revise its 2021 financial statements to reflect the new estimate

A certain business owns a piece of machinery used in manufacturing. In June 2022, after the 2021 financial statements were published, the company realized that the machine’s useful life was 10 years from that date, not seven years as originally estimated. Explain in your own words why it is not appropriate for the company to revise its 2021 financial statements to reflect the new estimate

Name: A certain business owns a piece of machinery used in manufacturing. In
Uploaded: 2024-03-05T11:47:04.000Z
Channel: Bartleby
Description: A certain business owns a piece of machinery used in manufacturing. In June 2022, after the 2021 financial statements were published, the company realized that the machine’s useful life was 10 years from that date, not seven years as originally estim

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 66P

See similar textbooks

Similar questions

At the end of 2020, Magenta Manufacturing Company discovered that construction cost had been capitalized as a cost of the factory building in 2015 when it should have been treated as a cost of production equipment installation costs. As a result of the misclassification, the depreciation through 2018 was understated by 110,000, and depreciation for 2019 was understated by 90,000. What would be the consequences of correcting for the misclassification of the property cost? a. The taxpayer uses the FIFO inventory method, and 25% of goods produced during the period were included in the ending inventory. b. The taxpayer uses the LIFO inventory method, and no new LIFO layer was added during 2019.
In 2024, it was discovered that Brandon Irons Metal works had debited expense for the full cost of an asset purchased on January 1, 2021. The cost was $12 million with no expected residual value. Its useful life was 5 years and straight-line depreciation is used by the company. The correcting entry assuming the error was discovered in 2024 before the adjusting and closing entries includes:
On January 2, 2021, the Start-Up Company purchased a patent for a new consumer product for P90,000. At the time of purchase, the patent was valid for 15 years. Due to the competitive nature of the product, the patent was estimated to have a useful life of 10 years. On December 31, 2022, the product was removed from the market under governmental order because of a potential health hazard present in the product. What amount should Start Up report as loss from obsolescence during 2022, assuming amortization is recorded at the end of each year?
Tracy Ltd. purchased a piece of equipment on January 1, 2016, for $1,260,000. At that time, it was estimated that the machine would have a 15-year life and no residual value. On December 31, 2020, Tracy’s controller found that the entry for depreciation expense was omitted in error in 2017. In addition, Tracy planned to switch to double-declining-balance depreciation because of a change in the pattern of benefits received, starting with the year 2020. Tracy currently uses the straight-line method for depreciating equipment. Prepare the general journal entries, if any, the accountant should make at December 31, 2020. (Ignore tax effects.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round the rate of deprecition under double decling balance method to 5 decimal places, ie. 13.33333%. Round answers to 0 decimal places, e.g. 5,125.)…
Equipment was purchased on January 2, 2020, for $24,000, but no portion of the cost has been charged to depreciation. The corporation wishes to use the straight-line method for these assets, which have been estimated to have a life of 10 years and no salvage value. What effect does this error have on net income in 2020? What entry is necessary to correct for this error, assuming that the books are not closed for 2020?
Langley Corporation replaced an HVAC system in one of its warehouses in July, 2021, at a cost of $430,000. The accountant recording the purchase charged it to repairs and maintenance expense. The error was discovered late in 2022 while reconciling depreciation expense for 2022. The system should last about 7 years with no salvage value. What entry should be made before the 2022 books are closed if the company uses straight-line depreciation? (Round intermediate calculations to the nearest cent and your final answer to the nearest dollar.) Group of answer choices Warehouse 430,000 Depreciation Expense—Warehouse 61,429 Retained Earnings 491,429 Warehouse 430,000 Depreciation Expense (2022)—Warehouse 61,429 Accumulated Depreciation—Warehouse92,144 Retained Earnings—Prior Period Adjustment 399,285 Warehouse 430,000 Accumulated Depreciation -Warehouse 61,429 Retained Earnings—Prior Period Adjustment 368,571 Retained…
On January 1, 2019, Uptown Builders purchased a machine for $200,000. Uptown's policy is to depreciate this type of machinery using straight-line depreciation, over five years, with no residual value. Because of a bookkeeping error, no depreciation was recognized in Uptown's 2019 or 2020 financial statements. The error was discovered during the preparation of the 2021 financial statements. Ignoring income taxes, the impact of this error on retained earnings prior to any 2021 adjustments is: Question 8 options: Overstatement of $80,000 Understatement of $120,000 Understatement of $80,000 Overstatement of $120,000
Presented below is selected information for Sheridan Company. Answer the questions asked about each of the factual situations. (Do not leave any answer field blank. Enter O for amounts.) 1. Sheridan purchased a patent from Vania Co. for $1,160,000 on January 1, 2018. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2028. During 2020, Sheridan determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2020? The amount to be reported $ 2. Sheridan bought a franchise from Alexander Co. on January 1, 2019, for $330,000. The carrying amount of the franchise on Alexander's books on January 1, 2019, was $330,000. The franchise agreement had an estimated useful life of 30 years. Because Sheridan must enter a competitive bidding at the end of 2021, it is unlikely that the…
Headland Co. purchased a machine on January 1, 2018, for $594,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2021, the firm's accountant found that the entry for depreciation expense had been omitted in 2019. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2021. At present, the company uses the sum-of-the-years-digits method for depreciating equipment. Prepare the general journal entries that should be made at December 31, 2021, to record these events. (Ignore tax effects.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit Dec. 31, 2021 (To correct for the omission of depreciation expense in 2019.) Dec. 31, 2021 (To record depreciation…
The Western Company, a company that follows IFRS, provided you with the following information about a number of transactions that took place in 2020: On January 1, 2020 Western acquired a patent for $45,000 cash. The patent expires on January 1, 2028, but the company determined that it will generate future benefits for 6 years from the date of acquisition. During 2022, the total useful life of the patent was revised to 4 years. During March 2020, The Wester Company invested $120,000 in research costs about a new product that it aims to develop in 2021. The amount was paid in cash. The Western Company estimates that its internal goodwill is worth $980,000 in July 2020. Required- Prepare the journal entries related to the patent from January 1, 2020 to December 31, 2022. Prepare the journal entries for 2 and 3. If no journal entry is required, justify why.
In January 2021, Blossom Corporation purchased a patent for a new consumer product for $558900. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. In 2026 the product was determined to be obsolete due to a competitor's new product. What amount should Blossom report on the income statement during 2026 related to the patent, assuming straight-line amortization is recorded at the company's December 31 year-end? $35890 O $279450 O $578900 O $179450
Joy Cunningham Co. purchased a machine on January 1, 2018, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2021, the firm's accountant found that the entry for depreciation expense had been omitted in 2019. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2021. At present, the company uses the sum-of-the-years'-digits method for depreciating equipment. Instructions Prepare the general journal entries that should be made at December 31, 2021, to record these events. (Ignore tax effects.)