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Complete the following in WileyPLUS:

  • Brief Exercise 22-1
  • Brief Exercise 22-4
  • Brief Exercise 22-7
  • Brief Exercise 22-8
  • Exercise 22-2
  • Exercise 22-5
  • Exercise 22-10
  • Exercise 22-11
  • Exercise 22-16
  • Exercise 22-17
  • Exercise 22-20
  • Exercise 22-22


Brief Exercise 22-1

At the beginning of 2017, Sage Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2017, pretax income under the two methods was as follows: percentage-of-completion $114,600, and completed-contract $84,000. The tax rate is 40%.

Prepare Sage’s 2017 journal entry to record the change in accounting principle. 


Brief Exercise 22-4

Culver Company changed depreciation methods in 2017 from double-declining-balance to straight-line. Depreciation prior to 2017 under double-declining-balance was $87,900, whereas straight-line depreciation prior to 2017 would have been $54,900. Culver’s depreciable assets had a cost of $241,300 with a $43,800 salvage value, and an 8-year remaining useful life at the beginning of 2017.

Prepare the 2017 journal entry related to Culver’s depreciable assets (Equipment


Brief Exercise 22-7

At January 1, 2017, Coronado Company reported retained earnings of $1,970,000. In 2017, Coronado discovered that 2016 depreciation expense was understated by $436,000. In 2017, net income was $878,000 and dividends declared were $243,000. The tax rate is 40%.

Prepare a 2017 retained earnings statement for Coronado Company.



Brief Exercise 22-8

Indicate the effect—Understate, Overstate, No Effect—that each of the following errors has on 2017 net income and 2018 net income.

a)         Equipment purchased in 2015 was expensed.                                               

(b)        Wages payable were not recorded at 12/31/17.                                             

(c)        Equipment purchased in 2017 was expensed.                                               

(d)       2017 ending inventory was overstated.                                             

(e)        Patent amortization was not recorded in 2018.                                             


Exercise 22-2

Metlock Company began operations on January 1, 2015, and uses the average-cost method of pricing inventory. Management is contemplating a change in inventory methods for 2018. The following information is available for the years 2015–2017.
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2018. 

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

(c) Assume Metlock Company used the LIFO method instead of the average cost method during the years 2015–2017. In 2018, Metlock changed to the FIFO method. Prepare the journal entry necessary to record the change in principle. 


Exercise 22-5 (Part Level Submission)

Presented below are income statements prepared on a LIFO and FIFO basis for Riverbed Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Riverbed’s profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.


LIFO Basis


FIFO Basis


















Cost of goods sold









Operating expenses









Income before profit-sharing









Profit-sharing expense









Net income












If comparative income statements are prepared, what net income should Riverbed report in 2016 and 2017?


Assume that Riverbed has a beginning balance of retained earnings at January 1, 2017, of $891 using the LIFO method. The company declared and paid dividends of $520 in 2017. Prepare the retained earnings statement for 2017, assuming that Riverbed has switched to the FIFO method. 


Exercise 22-10

Listed below are various types of accounting changes and errors.


For each change or error, indicate how it would be accounted for using the following code:


1.                     Change in a plant asset’s salvage value.                    

2.                     Change due to overstatement of inventory.              

3.                     Change from sum-of-the-years’-digits to straight-line method of depreciation.                   

4.                     Change from presenting unconsolidated to consolidated financial statements.                    

5.                     Change from LIFO to FIFO inventory method.                   

6.                     Change in the rate used to compute warranty costs.             

7.                     Change from an unacceptable accounting principle to an acceptable accounting principle.             

8.                     Change in a patent’s amortization period.                 

9.                     Change from completed-contract to percentage-of-completion method on construction contracts.            

10.                   Change from FIFO to average-cost inventory method.        


Exercise 22-11

Sandhill Co. purchased a equipment on January 1, 2015, for $594,000. At that time, it was estimated that the equipment would have a 10-year life and no salvage value. On December 31, 2018, the firm’s accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. 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, 2018, to record these events. (Ignore tax effects.)


Exercise 22-16

You have been engaged to review the financial statements of Larkspur Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.



Year-end wages payable of $3,490 were not recorded because the bookkeeper thought that “they were immaterial.”



Accrued vacation pay for the year of $28,400 was not recorded because the bookkeeper “never heard that you had to do it.”



Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $2,532 because “the amount of the check is about the same every year.”



Reported sales revenue for the year is $2,116,820. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $102,020.

Prepare the necessary correcting entries, assuming that Larkspur uses a calendar-year basis. The books for the current year have not been closed.



Exercise 22-17

The reported net incomes for the first 2 years of Windsor Products, Inc., were as follows: 2017, $139,100; 2018, $189,700. Early in 2019, the following errors were discovered.



Depreciation of equipment for 2017 was overstated $15,900.



Depreciation of equipment for 2018 was understated $36,700.



December 31, 2017, inventory was understated $52,300.



December 31, 2018, inventory was overstated $16,300.

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.)


Exercise 22-20

The before-tax income for Buffalo Co. for 2017 was $111,000 and $75,100 for 2018. However, the accountant noted that the following errors had been made:



Sales for 2017 included amounts of $37,400 which had been received in cash during 2017, but for which the related products were delivered in 2018. Title did not pass to the purchaser until 2018.



The inventory on December 31, 2017, was understated by $8,800.



The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the following entry on an annual basis.


Interest Expense









The bonds have a face value of $230,000 and pay a stated interest rate of 5%. They were issued at a discount of $16,000 on January 1, 2017, to yield an effective-interest rate of 6%. (Assume that the effective-yield method should be used.)




Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2017 and 2018. Repairs in the amount of $9,200 in 2017 and $10,200 in 2018 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges.

Prepare a schedule showing the determination of corrected income before taxes for 2017 and 2018.



Exercise 22-22

On January 1, 2017, Marin Co. purchased 22,000 shares (a 10% interest) in Elton John Corp. for $1,480,000. At the time, the book value and the fair value of John’s net assets were $12,100,000.

On July 1, 2018, Marin paid $3,340,000 for 44,000 additional shares of John common stock, which represented a 20% investment in John. The fair value of John’s identifiable assets net of liabilities was equal to their carrying amount of $13,200,000. As a result of this transaction, Marin owns 30% of John and can exercise significant influence over John’s operating and financial policies. (Any excess fair value is attributed to goodwill.)

John reported the following net income and declared and paid the following dividends.


Net Income


Dividend per Share

Year ended 12/31/17





Six months ended 6/30/18





Six months ended 12/31/18





Determine the ending balance that Marin Co. should report as its investment in John Corp. at the end of 2018.

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