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Problem 2 (20 points). You are auditing Rangoon Corporation and you have come across several items end adjustments. The following items listed below require your consideration your audit. The company has an average i material in nature. that may require year before you complete ncome tax rate of 35% and all items are considered RANGOON CORPORATION ITEMS THAT MAY REQUIRE YEAR END ADJUSTMENTS FOR FISCAL YEAR ENDING SEPTEMBER 30, 20X4 (a) Merchandise inventory was a overstated by $200,000 at October 1,20X3. The company uses the periodic inventory system to account for its inventory. The merchandise inventory was properly stated on the books at September 30, 20X4. (b) On April 1, 20X1 (31 2 years ago), the purchase of machinery was debited to Repair Expense in the amount of $100,000. The machinery was expected to have a useful life of 8 years with a residual value of $4,000 at the time of purchase. The company uses straight line depreciation for depreciating these types of assets. (c) A patent, that originally cost $100,000, has been amortized on a straight line basis since July 1, 20X0 based upon a useful life of fourteen years. However, due to changes in technology the useful life of the patent on October 1, 20X3 is estimated to be only six more years. (d) | Effective October 1, 20X3, the company changed its depreciation method from 200% declining balance to straight line depreciation on furniture and fixtures. The assets were originally purchased on October 1,20X1, at a cost of $800,000, with an estimated useful life of eight years and $20,000 residual value. (e) On October 1, 20X3, the company received $150,000 from a customer for services to be rendered evenly over the next 18 months beginning on November 1, 20X3. The entire amount was credited to Service Revenue Earned on October 1 D: () For each of the above items, classify the item into one o categories. (a) Correction of an error--current period. ) Correction of an error--prior period. (d) Change in accounting estimate. Change in accounting principle. (2) For each of the above items, prepare the general jounal entryties), if any, in proper form, required to reflect the proper amounts in the accounting records at the fiscal year end of September 30, 20X4. Provide a brief explanation for the entry made with any supporting calculations. Assume the books have not been closed for the fiscal year and no adjusting entries related to the above items have been made by the company. Use the letter of the item as the transaction date

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