The first audit of the books of Gomez Limited was recently carried out for the year ended December 31, 2014. Gomez follows IFRS. In examining the books, the auditor found that certain items had been overlooked or might have been incorrectly handled in the past:

1. At the beginning of 2012, the company purchased a machine for $450,000 (residual value of $45,000) that had a useful life of six years. The bookkeeper used straight-line depreciation, but failed to deduct the residual value in calculating the depreciation base for the three years.

2. At the end of 2013, the company accrued sales salaries of $36,000 in excess of the correct amount.

3. A tax lawsuit that involved the year 2012 was settled late in 2014. It was determined that the company owed an additional $73,000 in tax related to 2012. The company did not record a liability in 2012 or 2013, because the possibility of losing was considered remote. The company charged the $73,000 to retained earnings in 2014 as a correction of a prior year's error.

4. Gomez purchased another company early in 2010 and recorded goodwill of $450,000. Gomez amortized $22,500 of goodwill in 2010, and $45,000 in each subsequent year.

5. In 2014, the company changed its basis of inventory costing from FIFO to weighted average cost. The change's cumulative effect was to decrease net income of prior years by $39,000. The company debited this cumulative effect to Retained Earnings. The weighted average cost formula was used in calculating income for 2014.

6. In 2014, the company wrote off $87,000 of inventory that it discovered, in 2014, had been stolen from one of its warehouses in 2013. This loss was charged to a loss account in 2014.

Instructions

(a) Prepare the journal entries in 2014 to correct the books where necessary, assuming that the 2014 books have not been closed. Assume that the change from FIFO to weighted average cost can be justified as resulting in more relevant financial information. Disregard the effects of corrections on income tax.

(b) Identify the type of change for each of the six items.

(c) Redo part (a) but include the effects of income tax, assuming the company has a tax rate of 25%.