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Problem 20-12 Accounting changes and error correction; seven situations; tax effects ignored [LO20-1, 20-2, 20-3, 20-4, 20-6) Williams-Santana, Inc, is a manufacturer of high-tech industrial parts that was started in 2006 by two talented engineers with itle business training In 2018, the company was acquired by one of its major customers. As part of an internal audlt, the following facts were discovered. The audit occurred during 2018 before any adjusting entries or closing entries were prepared. a A five-year casuahy insurance policy was purchased at the beginning of 2016 for $32,500. The ful amount was debited to nsurance expense at the time b. Efflective January 1,2018, the company changed the salvage valie used in cakculating depreciation for its office building The and a salvage value of $100,000. Declining real estate values in the area indicate that the savage value will be no more than c. On December 31, 2017, merchandise inventory was overstated by $22.500 due to a mistake in the physical inventory count using . The company changed inventory cost methods to FiFO from LIFO at the end of 2018 for both inancial statement and income tax building cost $580,000 on December 29, 2007, and has been depreciated on a straight-line basis assuming a useful life of 40 years $25,000 the periodic inventory system. purposes. The change will cause a $935,000 increase in the beginning inventory at January 1, 20t9 e. At the end of 2017, the company faled to accrue $15,000 of sales commissions earned by employees during 2017. The expense was recorded when the commissions were paid in early 2018 t At the beginning of 2016, the company purchased a machine at a cost of $670,000 its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double-declining balance method. Its book value on December 31, 2017, was S428800 On January 1, 2018, the company changed to the straight ine method warranty expense is determined each year as 9% of sales. Actual payment experience of recent years indicates that 075% is better indication of the actual cost. Management effects the change in 2018. Credit saies for 2018 are $3.500.000, in 2017 they were $3,200.000. g. t Identify whether it represents an accounting change or an error, If an accounting change, identify the type of change. For accourting errors, choose "Not applicable 2. Prepare any journal entry necessary as a direct nesa of the change or error correction as wer as any dtng enny for 2018 related to the situetion descibed. Ignore tax emects MacBook Air 888, 3 7 option command commandopc

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