Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2016 and 2017, reported the following amounts and subtotals ($ in millions): Assets Liabilities Shareholders' Equity Net Income Expenses 2016 $ 820 $ 370 $ 450 $ 250 $ 158 2017 900 440 460 270 183 In 2018 the following situations occurred or came to light: Internal auditors discovered that ending inventories reported on the financial statements the two previous years were misstated due to faulty internal controls. The errors were in the following amounts: 2016 inventory Overstated by $ 12.8 million 2017 inventory Understated by $ 10.8 million A liability was accrued in 2016 for a probable payment of $8.6 million in connection with a lawsuit ultimately settled in December 2018 for $4.8 million. A patent costing $22.8 million at the beginning of 2016, expected to benefit operations for a total of six years, has not been amortized since acquired. Whaley’s conveyer equipment was depreciated by the sum-of-the-years’-digits (SYD) basis since it was acquired at the beginning of 2016 at a cost of $42.0 million. It has an expected useful life of five years and no expected residual value. At the beginning of 2018, Whaley decided to switch to straight-line depreciation. Required: For each situation: 1. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2018 related to the situation described. (Ignore tax effects.) 2. Determine the amounts to be reported for each of the five items shown below from the 2016 and 2017 financial statements when those amounts are reported again in the 2016–2018 comparative financial statements

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2016 and 2017, reported the following amounts and subtotals ($ in millions):

	Assets	Liabilities	Shareholders' Equity	Net Income	Expenses
2016	$	820		$	370	$	450	$	250	$	158
2017		900			440		460		270		183

In 2018 the following situations occurred or came to light:

Internal auditors discovered that ending inventories reported on the financial statements the two previous years were misstated due to faulty internal controls. The errors were in the following amounts:


2016 inventory	Overstated by	$	12.8	million
2017 inventory	Understated by	$	10.8	million

A liability was accrued in 2016 for a probable payment of $8.6 million in connection with a lawsuit ultimately settled in December 2018 for $4.8 million.
A patent costing $22.8 million at the beginning of 2016, expected to benefit operations for a total of six years, has not been amortized since acquired.
Whaley’s conveyer equipment was depreciated by the sum-of-the-years’-digits (SYD) basis since it was acquired at the beginning of 2016 at a cost of $42.0 million. It has an expected useful life of five years and no expected residual value. At the beginning of 2018, Whaley decided to switch to straight-line depreciation.

Required:
For each situation:
1. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2018 related to the situation described. (Ignore tax effects.)
2. Determine the amounts to be reported for each of the five items shown below from the 2016 and 2017 financial statements when those amounts are reported again in the 2016–2018 comparative financial statements.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions