Accounting Corrections & Changes
Wangerin Company is in the process of adjusting and correcting its books at the end of 2014. In reviewing its records, the following information is compiled:
1. At December 31, 2014, Wangerin decided to change the depreciation method on its office equipment from double declining balance to straight line. The equipment had an original cost of $200,000 when purchased on January 1, 2012. It has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2014 under the double declining balance method was $72,000. Wangerin has already recorded 2014 depreciation expense of $25,600 using the double-declining balance method.
2. Before 2014, Wangerin accounted for its income from long-term construction contracts on the completed contract basis. Early in 2014, Wangerin changed to the percentage of completion basis for accounting purposes. It continues to use the completed contract method for tax purposes. Income for 2014 has been recorded using the percentage of completion method. The following information is available:
| |
Pretax Income |
Pretax Income |
| |
Percentage of Completion |
Completed Contract |
| Prior to 2014 |
$450,000 |
$315,000 |
| 2014 |
$180,000 |
$60,000 |
3. Insurance for a 12 month period purchased on November 1 of this year was charged to insurance expense in the amount of $3,300 because 'the amount of the check is abou the same every year".
4. Reported sales revenue for the year is $1,908,000. 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 is $103,400.
Instructions: Prepare the journal entries necessary at December 31, 2014, to record the above corrections and changes. The books are still open for 2014. The income tax rate is 40%. Wangerin has no yet recorded its 2014 income tax expense and payable amounts so current-year tax effects maybe be ignored. Prior-year tax effects must be considered in item 2.