P22-3 (Error Corrections and Accounting Changes) Patricia Voga Company is in the process of adjusting and correcting its books at the end of 2008. In reviewing its records, the following information is compiled.
1. Voga has failed to accrue sales commissions payable at the end of each of the last 2 years, as follows.
December 31, 2007 $4,000
December 31, 2008 $2,500
2. In reviewing the December 31, 2008, inventory, Voga discovered errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows.
December 31, 2006 Understated $16,000
December 31, 2007 Understated $21,000
December 31, 2008 Overstated $ 6,700
Voga has already made an entry that established the incorrect December 31, 2008, inventory amount.
3. At December 31, 2008, Voga decided to change the depreciation method on its office equipment from double-declining balance to straight-line. The equipment has an original cost of $100,000 when purchased on January 1, 2006. it has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2008 under the double-declining balance method was $36,000. Voga has already recorded 2008 depreciation expense of $12,800 using the double-declining balance method.
4. Before 2008, Voga accounted for its income from long-term construction contracts on the completedcontract basis. Early in 2008, Voga changed to the percentage-of-completion basis for accounting purposes. It continues to use the completed-contract method for tax purposes. Income for 2008 has been recorded using the percentage-of-completion method. The following information (on page 1199) is available.
Prior to 2008 $150,000 $95,000
2008 60,000 20,000
Prepare the journal entries necessary at December 31, 2008, to record the above corrections and changes.
The books are still open for 2008. The income tax rate is 40%. Voga has not yet recorded its 2008 income tax expense and payable amounts so current-year tax effects may be ignored. Prior-year tax effects must be considered in item 4.
This solution prepares the Journal Entries for December 31st, 2008 which include the errors corrected and changed. These changes take in the form of understating inventories, modified depreciation methods, and tax changes.