1. Gear Company records $2,000 of depreciation under the sum-of-years'-digits method in 2019, the compa- Cha...

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1. Gear Company records $2,000 of depreciation under the sum-of-years'-digits method in 2019, the compa- Cha ny's first year of operations. In 2020, the company decides to change to the straight-line method for account- Rep ing purposes. If the straight-line method were used in 2019, depreciation would have been $1,500. Depre- ciation in 2020 under the straight-line method is $1,800 (depreciated based on the book value on January 1, 2020). The tax rate is 25%. Income from continuing operations before tax and before deducting depreciation in 2020 is $12,000. Required Provide the 2020 entry to record this change and calculate 2020 net income. 2. Helms Company purchases a delivery truck for $12,000 on January 1, 2019. Helms expects to use the truck only two years and to sell it for $4,000. The company's policy is to use straight-line depreciation but depre- ciation in 2019 is not recorded. Rather, the accountant charges the entire cost to delivery expense in 2019. The controller discovers the error late in 2020. Required Provide the 2020 entries to record depreciation and the error correction and indicate the amounts of the prior period adjustments appearing in the 2019 and 2020 retained earnings sections of the statement of stockholders' equity. The tax rate is 25%. 3. On July 1, 2018 a full year's insurance premium of $2,400, covering the period July 1, 2018, to June 30, 2019 was paid and debited to insurance expense. Assume the following: • The company has a calendar fiscal year. • January 1, 2018, retained earnings balance is $20,000. • 2018 reported net income (assuming the error is not discovered) is $22,800. • 2019 net income (assuming the error is not discovered) is $30,000. • 2020 net income is $40,000. Ignore taxes. Required a. List the effects of the error on affected accounts and on net income in 2018 and 2019, assuming no adjusting entry is made on December 31, 2018. b. Prepare the entry to record the error if discovered in 2018. c. Prepare the entry to record the error if discovered in 2019, and the 2018 and 2019 retained earnings sections of the statement of stockholders' equity. d. Prepare the entry (if needed) to record the error if discovered in 2020, and the 2019 and 2020 retained earn- ings sections of the statement of stockholders' equity. 1. Gear Company records $2,000 of depreciation under the sum-of-years'-digits method in 2019, the compa- Cha ny's first year of operations. In 2020, the company decides to change to the straight-line method for account- Rep ing purposes. If the straight-line method were used in 2019, depreciation would have been $1,500. Depre- ciation in 2020 under the straight-line method is $1,800 (depreciated based on the book value on January 1, 2020). The tax rate is 25%. Income from continuing operations before tax and before deducting depreciation in 2020 is $12,000. Required Provide the 2020 entry to record this change and calculate 2020 net income. 2. Helms Company purchases a delivery truck for $12,000 on January 1, 2019. Helms expects to use the truck only two years and to sell it for $4,000. The company's policy is to use straight-line depreciation but depre- ciation in 2019 is not recorded. Rather, the accountant charges the entire cost to delivery expense in 2019. The controller discovers the error late in 2020. Required Provide the 2020 entries to record depreciation and the error correction and indicate the amounts of the prior period adjustments appearing in the 2019 and 2020 retained earnings sections of the statement of stockholders' equity. The tax rate is 25%. 3. On July 1, 2018 a full year's insurance premium of $2,400, covering the period July 1, 2018, to June 30, 2019 was paid and debited to insurance expense. Assume the following: • The company has a calendar fiscal year. • January 1, 2018, retained earnings balance is $20,000. • 2018 reported net income (assuming the error is not discovered) is $22,800. • 2019 net income (assuming the error is not discovered) is $30,000. • 2020 net income is $40,000. Ignore taxes. Required a. List the effects of the error on affected accounts and on net income in 2018 and 2019, assuming no adjusting entry is made on December 31, 2018. b. Prepare the entry to record the error if discovered in 2018. c. Prepare the entry to record the error if discovered in 2019, and the 2018 and 2019 retained earnings sections of the statement of stockholders' equity. d. Prepare the entry (if needed) to record the error if discovered in 2020, and the 2019 and 2020 retained earn- ings sections of the statement of stockholders' equity.

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Solutions for Cha Accounting Problems 1 Gear Company Entry to record change in depreciation method A... View the full answer