Brief Exercise 22-1 At the beginning of 2017, Bonita 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 $110,900, and completed-contract $80,300. The tax rate is 35%. Prepare Bonita’s 2017 journal entry to record the change in accounting principle. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Brief Exercise 22-4 Flint 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. Flint’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 Flint’s depreciable assets (Equipment). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Brief Exercise 22-7 At January 1, 2017, Pearl Company reported retained earnings of $2,081,000. In 2017, Pearl discovered that 2016 depreciation expense was understated by $426,000. In 2017, net income was $812,000 and dividends declared were $271,000. The tax rate is 40%. Prepare a 2017 retained earnings statement for Pearl Company. PEARL COMPANY Retained Earnings Statement $ : : :  $ 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. 2017 2018 (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 Marigold 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. Net Income Computed Using Average-Cost Method FIFO Method LIFO Method 2015 $16,150 $18,870 $12,080 2016 17,860 20,890 14,140 2017 19,850 25,100 17,020 (a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. I.

1. Brief Exercise 22-1
At the beginning of 2017, Bonita 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 $110,900, and completed-contract
$80,300. The tax rate is 35%.
Prepare Bonita’s 2017 journal entry to record the change in
accounting principle. (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Brief Exercise 22-4
Flint 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

2. straight-line depreciation prior to 2017 would have been
$54,900. Flint’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 Flint’s depreciable
assets (Equipment). (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Brief Exercise 22-7
At January 1, 2017, Pearl Company reported retained earnings
of $2,081,000. In 2017, Pearl discovered that 2016 depreciation
expense was understated by $426,000. In 2017, net income was
$812,000 and dividends declared were $271,000. The tax rate is
40%.
Prepare a 2017 retained earnings statement for Pearl Company.
PEARL COMPANY
Retained Earnings Statement
$

3. :
:
:
$
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.
2017
2018
(a)
Equipment purchased in 2015 was expensed.

4. (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
Marigold 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.

5. Net Income Computed Using
Average-Cost Method
FIFO Method
LIFO Method
2015
$16,150
$18,870
$12,080
2016
17,860
20,890
14,140
2017
19,850
25,100
17,020
(a) Prepare the journal entry necessary to record a change from
the average cost method to the FIFO method in 2018. (Credit
account titles are automatically indented when amount is
entered. Do not indent manually. If no entry is required, select
"No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation

6. Debit
Credit
(b) Determine net income to be reported for 2015, 2016, and
2017, after giving effect to the change in accounting principle.
Net Income
2015
$
2016
$
2017
$
(c) Assume Marigold Company used the LIFO method instead of
the average cost method during the years 2015–2017. In 2018,
Marigold changed to the FIFO method. Prepare the journal entry
necessary to record the change in principle. (Credit account
titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit

7. Exercise 22-5 (Part Level Submission)
Presented below are income statements prepared on a LIFO and
FIFO basis for Sarasota 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. Sarasota’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
2017
2016
2017
2016
Sales
$3,150
$3,150

8. $3,150
$3,150
Cost of goods sold
1,090
970
1,110
920
Operating expenses
960
960
960
960
Income before profit-sharing
1,100
1,220
1,080
1,270
Profit-sharing expense
110
122

9. 113
122
Net income
$990
$1,098
$967
$1,148
Answer the following questions.
(a)
If comparative income statements are prepared, what net income
should Sarasota report in 2016 and 2017? (Round answers to 0
decimal places, e.g. 125.)
2017
2016
Net income

10. $
$
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

11. 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.

12. Exercise 22-11
Swifty Co. purchased a equipment on January 1, 2015, for
$517,000. 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.)
(Credit account titles are automatically indented when amount
is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the
amounts.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2018
(To correct for the omission of depreciation expense in 2016.)
Dec. 31, 2018

13. Exercise 22-16
You have been engaged to review the financial statements of
Grouper 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.
1.
Year-end wages payable of $3,510 were not recorded because
the bookkeeper thought that “they were immaterial.”
2.
Accrued vacation pay for the year of $33,300 was not recorded
because the bookkeeper “never heard that you had to do it.”
3.
Insurance for a 12-month period purchased on November 1 of
this year was charged to insurance expense in the amount of
$2,652 because “the amount of the check is about the same
every year.”
4.
Reported sales revenue for the year is $2,021,420. 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

14. Expense account is $97,820.
Prepare the necessary correcting entries, assuming that Grouper
uses a calendar-year basis. The books for the current year have
not been closed. (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)
No.
Account Titles and Explanation
Debit
Credit
1.
2.
3.

15. 4.
(To record the sales taxes due.)
(To correct prior entry.)
Exercise 22-17
The reported net incomes for the first 2 years of Flint Products,
Inc., were as follows: 2017, $146,400; 2018, $187,600. Early in
2019, the following errors were discovered.
1.
Depreciation of equipment for 2017 was overstated $18,200.
2.
Depreciation of equipment for 2018 was understated $40,600.

16. 3.
December 31, 2017, inventory was understated $49,300.
4.
December 31, 2018, inventory was overstated $16,000.
Prepare the correcting entry necessary when these errors are
discovered. Assume that the books are closed. (Ignore income
tax considerations.) (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Exercise 22-20
The before-tax income for Marin Co. for 2017 was $110,000
and $79,200 for 2018. However, the accountant noted that the
following errors had been made:
1.

17. Sales for 2017 included amounts of $37,300 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.
2.
The inventory on December 31, 2017, was understated by
$8,800.
3.
The bookkeeper in recording interest expense for both 2017 and
2018 on bonds payable made the following entry on an annual
basis.
Interest Expense
13,800
Cash
13,800
The bonds have a face value of $230,000 and pay a stated
interest rate of 6%. They were issued at a discount of $15,000
on January 1, 2017, to yield an effective-interest rate of 7%.
(Assume that the effective-yield method should be used.)
4.
Ordinary repairs to equipment had been erroneously charged to
the Equipment account during 2017 and 2018. Repairs in the
amount of $8,400 in 2017 and $8,700 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.

18. Prepare a schedule showing the determination of corrected
income before taxes for 2017 and 2018. (Enter negative amounts
using either a negative sign preceding the number e.g. -15,000
or parentheses e.g. (15,000). Round answers to 0 decimal
places, e.g. 125.)
2017
2018
Income Before Tax
$
$
Corrections:

19. Corrected Income Before Tax
$
$
Exercise 22-22
On January 1, 2017, Vaughn Co. purchased 24,000 shares (a
10% interest) in Elton John Corp. for $1,300,000. At the time,
the book value and the fair value of John’s net assets were
$12,900,000.
On July 1, 2018, Vaughn paid $2,890,000 for 48,000 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
$14,100,000. As a result of this transaction, Vaughn owns 30%
of John and can exercise significant influence over John’s

20. 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
$650,000
None
Six months ended 6/30/18
470,000
None
Six months ended 12/31/18
776,000
$1.50
Determine the ending balance that Vaughn Co. should report as
its investment in John Corp. at the end of 2018.
Investment in Elton John Corp.
$