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Exercise 22-2 Holder-Webb Company began operations on January 1,2012, and uses the average-cost method of pricing inventory.Management is contemplating a change in inventory methods for 2015.The following information is available for the years 2012–2014. NetIncome Computed Using Average-Cost Method FIFO Method LIFO Method2012 $15,958 $19,564 $12,444 2013 18,366 20,057 14,976 2014 20,46025,174 16,520 (a) Prepare the journal entry necessary to record achange from the average cost method to the FIFO method in 2015.(Credit account titles are automatically indented when amount isentered. Do not indent manually. If no entry is required, select"No Entry" for the account titles and enter 0 for the amounts.)Account Titles and Explanation Debit Credit (b) Determine netincome to be reported for 2012, 2013, and 2014, after giving effectto the change in accounting principle. Net Income 2012 $ 2013 $2014 $ (c) Assume Holder-Webb Company used the LIFO method insteadof the average cost method during the years 2012–2014. In 2015,Holder-Webb changed to the FIFO method. Prepare the journal entrynecessary to record the change in principle. (Credit account titlesare automatically indented when amount is entered. Do not indentmanually. If no entry is required, select "No Entry" for theaccount titles and enter 0 for the amounts.) Account Titles andExplanation Debit Credit Click if you would like to Show Work forthis question: Open Show Work

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Beverley Smith
Beverley SmithLv2
28 Sep 2019

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Exercise 22-2

Waterway Company began operations on January 1, 2015, and usesthe average-cost method of pricing inventory. Management iscontemplating a change in inventory methods for 2018. The followinginformation is available for the years 2015–2017.

Net Income Computed Using

Average-Cost Method

FIFO Method

LIFO Method

2015

$15,910

$18,950

$12,020

2016

18,030

21,160

13,990

2017

19,920

24,940

17,140


(a) Prepare the journal entry necessary to recorda change from the average cost method to the FIFO method in 2018.(Credit account titles are automatically indented whenamount is entered. Do not indent manually. If no entry is required,select "No Entry" for the account titles and enter 0 for theamounts.)

Account Titles and Explanation

Debit

Credit


(b) Determine net income to be reported for 2015,2016, and 2017, after giving effect to the change in accountingprinciple.

Net Income

2015

$

2016

$

2017

$


(c) Assume Waterway Company used the LIFO methodinstead of the average cost method during the years 2015–2017. In2018, Waterway changed to the FIFO method. Prepare the journalentry necessary to record the change in principle.(Credit account titles are automatically indented whenamount is entered. Do not indent manually. If no entry is required,select "No Entry" for the account titles and enter 0 for theamounts.)

Account Titles and Explanation

Debit

Credit

Problem 22-1 (Part Level Submission) Holtzman Company is in theprocess of preparing its financial statements for 2014. Assume thatno entries for depreciation have been recorded in 2014. Thefollowing information related to depreciation of fixed assets isprovided to you. 1. Holtzman purchased equipment on January 2,2011, for $68,000. At that time, the equipment had an estimateduseful life of 10 years with a $4,000 salvage value. The equipmentis depreciated on a straight-line basis. On January 2, 2014, as aresult of additional information, the company determined that theequipment has a remaining useful life of 4 years with a $2,500salvage value. 2. During 2014, Holtzman changed from thedouble-declining-balance method for its building to thestraight-line method. The building originally cost $200,000. It hada useful life of 10 years and a salvage value of $23,000. Thefollowing computations present depreciation on both bases for 2012and 2013. 2013 2012 Straight-line $17,700 $17,700 Declining-balance32,000 40,000 3. Holtzman purchased a machine on July 1, 2012, at acost of $180,000. The machine has a salvage value of $10,000 and auseful life of 8 years. Holtzman’s bookkeeper recordedstraight-line depreciation in 2012 and 2013 but failed to considerthe salvage value. Collapse question part (a) Partially correctanswer. Your answer is partially correct. Try again. Prepare thejournal entries to record depreciation expense for 2014 and correctany errors made to date related to the information provided.(Ignore taxes.) (Credit account titles are automatically indentedwhen amount is entered. Do not indent manually. If no entry isrequired, select "No Entry" for the account titles and enter 0 forthe amounts.) No. Account Titles and Explanation Debit Credit 1.Entry field with correct answer Depreciation Expense Entry fieldwith correct answer 11575 Entry field with correct answer Entryfield with correct answer Accumulated Depreciation-Equipment Entryfield with correct answer Entry field with correct answer 11575 2.Entry field with correct answer Depreciation Expense Entry fieldwith correct answer 13125 Entry field with correct answer Entryfield with correct answer Accumulated Depreciation-Building Entryfield with correct answer Entry field with correct answer 13125 3.Entry field with correct answer Depreciation Expense Entry fieldwith incorrect answer Entry field with correct answer Entry fieldwith correct answer Accumulated Depreciation-Machinery Entry fieldwith correct answer Entry field with incorrect answer (To recordcurrent year depreciation.) Entry field with correct answerAccumulated Depreciation-Machinery Entry field with incorrectanswer Entry field with correct answer Entry field with correctanswer Retained Earnings Entry field with correct answer Entryfield with incorrect answer (To correct prior year depreciation.)SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINKTO TEXT LINK TO TEXT Attempts: 3 of 3 used Collapse question part(b) Show comparative net income for 2013 and 2014. Income beforedepreciation expense was $270,310 in 2014, and was $292,290 in2013. (Ignore taxes.) HOLTZMAN COMPANY Comparative IncomeStatements For the Years 2014 and 2011 2014 2013 Income beforedepreciation expense $ $ Depreciation expense Net income

Molina Companys reported net incomes for 2013 and the previoustwo years are presented below.

2013 2012 2011

$105,000 $95,000 $70,000

2015s net income was properly determined after giving effect tothe following accounting changes, error corrections, etc. whichtook place during the year. The incomes for 2013 and 2014 do nottake these items into account and are stated at the amountsdetermined in those years. Ignore income taxes.

Instructions

(a)For each of the six accounting changes, errors, or priorperiod adjustment situations described below, prepare the journalentry or entries Molina Company should record during 2015 . If noentry is required, write none.

(b)After recording the situation in part (a) above, prepare theyear-end adjusting entry for December 31, 2015 . If no entry, writenone.

1>Early in 2013, Molina determined that equipment purchasedin January, 2011 at a cost of $645,000, with an estimated life of 5years and salvage value of $45,000 is now estimated to continue inuse until December 31, 2017 and will have a $15,000 salvage value.Molina recorded its 2013 depreciation at the end of 2013 .

2>Molina determined that it had understated its depreciationby $20,000 in 2012 owing to the fact that an adjusting entry didnot get recorded.

3>Molina bought a truck January 1, 2010 for $50,000 with a$5,000 estimated salvage value and a six-year life. The companydebited an expense account and credited cash on the purchase date.The truck is expected to be traded at the end of 2015 . Molina usesstraight-line depreciation for its trucks.

4>During 2013, Molina changed from the straight-line methodof depreciating its cement plant to the double-declining-balancemethod. The following calculations present depreciation on bothbases. (Ignore income taxes.) The 2013 amount appliesdouble-declining balance to the 1/1/13 carrying amount afterstraight-line was used.

2013 2012 2011

Straight-line $100,000 $100,000 $100,000

Double-declining $200,000 $160,000 $200,000

5>Molina, in reviewing its provision for uncollectiblesduring 2013, has determined that 1/2 of 1% is the appropriateamount of bad debt expense to be charged to operations. The companyhad used 1% as its rate in 2012 and 2011 when the expense had been$20,000 and $14,000, respectively. The company would have recorded$50,000 of bad debt expense on December 31, 2013 under the oldrate.

6>During 2013, Molina decided to change from the LIFO methodof valuing inventories to average cost. The net incomes involvedunder each method were as follows:

2013 2012 2011

LIFO $51,000 $59,000 $42,000

Average cost $63,000 $67,000 $48,000

Assume no difference between LIFO and average cost inventoryvalues in years prior to 2011 .

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