General Sales Company recently was acquired by a new owner, who has decided to correct the prior

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Question:

General Sales Company recently was acquired by a new owner, who has decided to correct the prior accounting records during the current reporting period, which ends December 31, 2020. The accounts have been partially adjusted but not closed for 2020. The following additional items have been discovered.

1. A patent that cost $9,350 has been amortized (straight line) for the past 10 years (excluding 2020) over its legal life of 20 years. It is now clear that its economic life will not be more than 12 years from the initial acquisition date.

2. Paid $8,000 during January 2018 for ordinary repairs on a machine that was acquired during January 2018. The repairs were erroneously capitalized. The machine has an estimated life of five years and no residual value. Assume straight-line depreciation.

3. The rate used for bad debts has been ½% of credit sales, which has proved to be too low; therefore, for 2020 and thereafter, the rate used will be 1% of credit sales. The amount of the expense recorded per year under the old rate was $800 in 2018 and $1,000 in 2019. (The amount for 2020 has not been entered in the ac-counts because the adjusting entries have not been made.) Credit sales for 2020 exceeded 2019 credit sales by 20%.

4. During January 2018, a five-year insurance premium of $750 was paid, which was debited in full to insurance expense at that time.

5. At the end of 2019, accrued salaries payable of $1,800 were not recorded; they were first recorded when paid early in 2020. Unpaid salaries at the end of 2020 were $2,100.

Required

a. For each of the eight items, identify whether it is an error correction or an accounting change and briefly explain how each should be accounted for.

b. Provide the appropriate pretax entry to record any change or correction and provide any adjusting entry needed in each instance at the end of 2020. Show computations. If no entry is needed, explain why.