m Company has following information related to its financial statements in 2021: (1) Tim changed inventory cost methods to weighted-average method from LIFO at the end of 2020 for both financial statement and income tax purposes. The change will cause a $80,000 increase in the beginning inventory on January 1, 2021. (2) The physical inventory count on December 31, 2020, improperly double counted (overstated) merchandise costing $12,000 that had been temporarily stored in a public warehouse. Tim uses a periodic inventory system. (3) Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its factory. The factory cost $ 800,000 on January 1, 2011 and has been depreciated on a straight-line basis assuming a useful life of 40 years and a salvage value of $200,000. New evidence indicates that the salvage value will be no more than $50,000. (4) A collection of $4,000 on account from a customer received on December 31, 2021, was not recorded until January 2, 2022. (5) At the beginning of 2020, the company purchased a vehicle at a cost of $40,000. Its useful life was estimated to be 8 years with the salvage value of $4,000. The machine has been depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method. (6) At December 31, 2021, an analysis of payroll information shows accrued salaries of $20,500. The salaries and wages payable account had a balance of $15,000 at December 31, 2021, which was unchanged from its balance at December 31, 2020. (7) Warranty expense is determined each year as 1.2 % of sales. Actual payment experience of recent years indicates that 1% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2020 were $6,523,000; in 2021 they are $7,310,000. (8) A large piece of equipment was purchased on January 1, 2019, for $60,000 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 6 years and no residual value. Tim normally uses the straight-line depreciation method for this type of equipment. (9) A $25,000 insurance premium paid on July 1, 2021, for a policy that expires on June 30, 20212, was charged to insurance expense. Instructions: Assume the books have not been closed for 2021. Prepare journal entries showing the adjustments that are required, assuming the income tax rate is 25% for every ye
Tim Company has following information related to its financial statements in 2021:
(1) Tim changed inventory cost methods to weighted-average method from LIFO at the end of 2020 for both financial statement and income tax purposes. The change will cause a $80,000 increase in the beginning inventory on January 1, 2021.
(2) The physical inventory count on December 31, 2020, improperly double counted (overstated) merchandise costing $12,000 that had been temporarily stored in a public warehouse. Tim uses a periodic inventory system.
(3) Effective January 1, 2021, the company changed the salvage value used in calculating depreciation for its factory. The
(4) A collection of $4,000 on account from a customer received on December 31, 2021, was not recorded until January 2, 2022.
(5) At the beginning of 2020, the company purchased a vehicle at a cost of $40,000. Its useful life was estimated to be 8 years with the salvage value of $4,000. The machine has been depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
(6) At December 31, 2021, an analysis of payroll information shows accrued salaries of $20,500. The salaries and wages payable account had a balance of $15,000 at December 31, 2021, which was unchanged from its balance at December 31, 2020.
(7) Warranty expense is determined each year as 1.2 % of sales. Actual payment experience of recent years indicates that 1% is a better indication of the actual cost. Management effects the change in 2021. Credit sales for 2020 were $6,523,000; in 2021 they are $7,310,000.
(8) A large piece of equipment was purchased on January 1, 2019, for $60,000 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 6 years and no residual value. Tim normally uses the straight-line depreciation method for this type of equipment.
(9) A $25,000 insurance premium paid on July 1, 2021, for a policy that expires on June 30, 20212, was charged to insurance expense.
Instructions:
Assume the books have not been closed for 2021. Prepare journal entries showing the adjustments that are required, assuming the income tax rate is 25% for every year.
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