Birmingham Company has been in business for five years. Last year, it experienced rapid growth and hired a new accountant to oversee the physical assets and record acquisitions and
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- Miller Co. discovered that in the prior year, it failed to report $40,000 of depreciation related to a newly constructed building. The depreciation was computed correctly for tax purposes. The tax rate for the current year was 40%. What was the impact of the error on Miller’s financial statements for the prior year? Understatement of net income of $24,000. Understatement of accumulated depreciation of $40,000. Understatement of depreciation expense of $24,000. Understatement of accumulated depreciation of $24,000.arrow_forwardGo Green Company is an environmental consulting firm in its second year of operations. The company didn't purchase any assets this year, but it did purchase the following assets in the previous year: Asset Placed in service Cost Computers March 10 $25,000 Furniture March 10 $40,000 Equipment April 15 $50,000 Go Green Company did not know that depreciation was tax deductible until it hired an accounting firm this year to help with its financial statements and tax return. Assume that bonus depreciation was not in effect and Go Green does not want to elect Section 179 for any of the assets. (a) What is the maximum amount of depreciation deduction Go Green Company can deduct in its second year of operations? (Round answer to O decimal places, e.g. 125.) Deduction $arrow_forwardAnswer the following question: Which of the following is an example of a change in accounting policy? a) Switching from the double declining balance to the straight-line method of depreciation b) Adjusting the financial statements for an inventory count omission which occurred 2 years previously. c) Switching from a salvage value of $10,000 to a salvage value of $4,000 in the 3rd year of the equipment’s 8-year life. d) Using 5% for the allowance for bad debts instead of 3% because of the increased possibility of bankruptcy by customers. e) None of the other answers are correct.arrow_forward
- Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Metlock Corporation. 1. 2. Metlock developed a new manufacturing process, incurring research and development costs of $129,000. The company also purchased a patent for $67,000. In early January, Metlock capitalized $196,000 as the cost of the patents. Patent amortization expense of $9,800 was recorded based on a 20-year useful life. On July 1, 2022, Metlock purchased a small company and as a result recorded goodwill of $81,000. Metlock recorded a half- year's amortization in 2022, based on a 20-year life ($2,025 amortization). The goodwill has an indefinite life. Prepare all journal entries necessary to correct any errors made during 2022. Assume the books have not yet been closed for 2022. (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…arrow_forwardIrvine Company operates a large trucking fleet. The company performed a major overhaul on one of its trucks in the amount of $50,000 that extended the useful life of the truck. Irvine Company's accountant erroneously expensed the capital expenditure. What are the effects of the accounting error on Irvine Company's income statement for the year the error was made? O Expenses, assets, and income are all understated. O Expenses are overstated, income and assets are understated. O Expenses and assets are overstated and income is understated. O Expenses and assets are understated and income is overstated. O Expenses are understated, income and assets are overstated.arrow_forward2. The accountant of Swift Inc. was preparing for the audit of its financial statements for the year ended December 31, 2022, and discovered that an automobile was being incorrectly depreciated. The automobile was purchased on January 1, 2021, for $50,000 and the estimated residual value after five years was expected to be $5,000.The company uses the straight-line basis for depreciating vehicles, but the residual value was not considered when determining the depreciation amount. The financial controller informed the accountant that the company was switching to the double- declining balance method of depreciation for the current and future years, as it was believed this method would more accurately portray the consumption of benefits received from the asset's use.Required: State whether it is a change in accounting estimate/policy or an accounting error. Prepare the journal entries required on December 31, 2022. Ignore income tax effects. Show all workingsarrow_forward
- You are auditing the financial records of a company, and you are aware that it has grown quickly in the last few years by acquiring other companies. You look up the disclosure in last year’s annual report which states, “The company amortizes its intangibles over periods ranging from 3 to 15 years.” As you review the company’s records, you find that the company made an acquisition of a “high-tech” company 3 years ago and has not recognized any impairment on the related goodwill. In the last 6 years, the company has made five other acquisitions and has not recognized any impairment related to them. Included in the acquisitions are several patents that are amortized over 9 years and some intangibles with indefinite lives. Required: From financial reporting and ethical perspectives, discuss the issues raised by this situation.arrow_forwardOn January 1, year one, Newport Corp. purchases a machine for $100,000. The machine is depreciated using the straight-line method over a ten-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Newport's year-one financial statements, resulting in a $10,000 overstatement of the book value of the machine on December 31, year one. The oversight was discovered during the preparation of Newport's year-two financial statements. What amount should Newport report for depreciation expense on the machine in the year-two financial statements? $10,000 $20,000 $11,000 $9,000arrow_forwardHarris Corp. is a technology start-up currently in its second year of operations. The company didn’t purchase any assets this year but purchased the following assets in the prior year: Placed in Asset Service Basis Office equipment August 14 $ 10,200 Manufacturing equipment April 15 70,000 Computer system June 1 18,000 Total $ 98,200 Harris did not know depreciation was tax deductible until it hired an accountant this year and didn’t claim any depreciation deduction in its first year of operation. (Use MACRS Table 1 and Table 2.) Problem 10-55 Part b (Algo) b. What is the basis of the office equipment at the end of the second year? (Leave no answer blank. Enter zero if applicable.) Basis of Office Equipment:$_______?arrow_forward
- Classify each of the following accounting practices as conservative or aggressive. 1. Increase the allowance for uncollectible accounts. 2. When costs are rising, change from LIFO to FIFO. 3. Change from declining-balance to straight-line depreciation in the second year of an asset depreciated over 20 years.arrow_forwardDue to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Monty Corporation. 1. Monty developed a new manufacturing process, incurring research and development costs of $188,000. The company also purchased a patent for $43,000. In early January, Monty capitalized $231,000 as the cost of the patents. Patent amortization expense of $11,550 was recorded based on a 20-year useful life. 2. On July 1, 2022, Monty purchased a small company and as a result, recorded goodwill of $80,000. Monty recorded a half-year’s amortization in 2022, based on a 20-year life ($2,000 amortization). The goodwill has an indefinite life. Prepare all journal entries necessary to correct any errors made during 2022. Assume the books have not yet been closed for 2022.arrow_forwardChang Company has a December 31 year end. In year 7 it bought a piece of equipment at the start of the year for $575,500 and employed straight line depreciation over 5 years with an estimated residual value of $72,750. At the start of year 8 Chang decides to change the depreciation method to double declining balance (same life and salvage). This is considered a change in accounting policy and you are asked to solve it. Required 1: What is the amount of Depreciation Expense reported at December 31st of Year 7 before knowing the accounting policy will change? Required 2: What is the amount of Depreciation Expense to be reported for the year ended December 31st of Year 8? Required 3: What is the amount of Accumulated Depreciation that is retroactively recognized for year 7 when depreciation method is changed? Required 4: What is the Net Book Value of the equipment on December 31st of Year 7 before knowing the accounting policy will change? Required 5: What is the Net Book…arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College