80.2K

Verified Solution

Link Copied!

You joined recently as the Chief Accountant of BIG Co. As part of your preparation for the Dec 31 2020 year-end audit, the following items come to your attention:

Part a

Big Co bought a truck on January 1, 2017 for $ 98,000 cash, with an $ 8,000 estimated residual value and a six-year life. The company debited an expense account for the entire cost of the asset. Big co uses straight-line depreciation for all trucks.

Required Prepare the general journal entry required to correct the books for the situation of this problem, assuming that the books have not been closed for 2020.

Part b

Most of the furniture and fixtures owned by BIG Co are depreciated over a 12-year life and depreciation expense this year was $600,000. You CFO wants the useful life revised to 8 years. Our original estimated were not accurate we need to adjust to reflect reality and the matching principle . This would result in a revised depreciation expense of $900,000 and a useful life of anywhere from 8 to 12 years

Required Prepare the proper Journal entry to reflect the adjustment

Part c

On Jan 10, 2021 a flood cause the operations to stop for two weeks . Big Co recovered thereafter and submitted the Insurance claim . Management is not sure how to account for the transaction in 2020 year end.

Required Assist BIG Co in properly reporting this transaction

Part d

In January 2020 Management decided to change its Inventory Accounting Policy from FIFO to Weighted Average

Required Assist BIG Co in properly reporting this transaction

Answer & Explanation Solved by verified expert

See Answer