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Recording a Change in Estimate, an Error Correction, and a Change in Accounting Principle

On December $31,$ Year $4,$ Alexa Company is preparing adjusting entries for its annual year$-$end. The following issues confront the company.

$1.$ Equipment #$101$ with a cost of $$12,320$ was purchased three years earlier on January $1,$ Year $2.$ It is being depreciated on a straight$-$line basis over an estimated useful life of $10$ years with no residual value. At December $31,$ Year $4,$ it has been determined that the estimated total useful life is $6$ years instead of $10.$

$2.$ Equipment #$502$ with a cost of $$7,280$ was purchased four years earlier on January $1,$ Year $1.$ It is being depreciated on a straight$-$line basis over an estimated useful life of seven years with no residual value. At December $31,$ Year $4,$ it was discovered that no depreciation had been recorded on this equipment for Year $1$ or Year $2,$ but it was recorded for Year $3.$

$3.$ In Year $4,$ Alexa decided to change inventory methods from the weighted$-$average method to the FIFO method. Net income reported in Year $3$ applying the weighted$-$average method was $$152,000.$ If FIFO had been applied in Year $3,$ net income would have been $$161,600.$

a$.$ For equipment #$101,$ provide the required adjusting entry for depreciation expense at December $31,$ Year $4.$

$$ Note: Round answers to the nearest whole dollar.

DateAccount NameDr.Cr$.$Dec. $31,$ Year $4$CashAccounts ReceivablePrepaid Lease ExpenseSuppliesEquipmentAccumulated DepreciationAccounts PayableSalaries PayableInterest PayableNote PayableCommon StockRetained EarningsDividendsService RevenueLease ExpenseDepreciation ExpenseSupplies ExpenseIncome SummaryInterest ExpenseSalaries ExpenseUtility ExpenseMiscellaneous ExpenseAnswer $1$CashAccounts ReceivablePrepaid Lease ExpenseSuppliesEquipmentAccumulated DepreciationAccounts PayableSalaries PayableInterest PayableNote PayableCommon StockRetained EarningsDividendsService RevenueLease ExpenseDepreciation ExpenseSupplies ExpenseIncome SummaryInterest ExpenseSalaries ExpenseUtility ExpenseMiscellaneous ExpenseAnswer $2$To record deprecaiation.

b$.$ For equipment #$502,$ provide the required adjusting entry for depreciation expense at December $31,$ Year $4.$

DateAccount NameDr.Cr$.$Dec. $31,$ Year $4$CashAccounts ReceivablePrepaid Lease ExpenseSuppliesEquipmentAccumulated DepreciationAccounts PayableSalaries PayableInterest PayableNote PayableCommon StockRetained EarningsDividendsService RevenueLease ExpenseDepreciation ExpenseSupplies ExpenseIncome SummaryInterest ExpenseSalaries ExpenseUtility ExpenseMiscellaneous ExpenseAnswer $3$CashAccounts ReceivablePrepaid Lease ExpenseSuppliesEquipmentAccumulated DepreciationAccounts PayableSalaries PayableInterest PayableNote PayableCommon StockRetained EarningsDividendsService RevenueLease ExpenseDepreciation ExpenseSupplies ExpenseIncome SummaryInterest ExpenseSalaries ExpenseUtility ExpenseMiscellaneous ExpenseAnswer $4$To record deprecaiation.

c$.$ For equipment #$502,$ provide any necessary correcting entry. Ignore income taxes.

DateAccount NameDr.Cr$.$Dec. $31,$ Year $4$CashAccounts ReceivablePrepaid Lease ExpenseSuppliesEquipmentAccumulated DepreciationAccounts PayableSalaries PayableInterest PayableNote PayableCommon StockRetained EarningsDividendsService RevenueLease ExpenseDepreciation ExpenseSupplies ExpenseIncome SummaryInterest ExpenseSalaries ExpenseUtility ExpenseMiscellaneous ExpenseAnswer $5$CashAccounts ReceivablePrepaid Lease ExpenseSuppliesEquipmentAccumulated DepreciationAccounts PayableSalaries PayableInterest PayableNote PayableCommon StockRetained EarningsDividendsService RevenueLease ExpenseDepreciation ExpenseSupplies ExpenseIncome SummaryInterest ExpenseSalaries ExpenseUtility ExpenseMiscellaneous ExpenseAnswer $6$To record correcting entry.

d$.$ In reporting comparative income statements in Year $4,$ what net income amount is presented for Year $3?$

$Answer $7$

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