Schaefer Company is in the process of adjusting and correcting its books at the end of 2010. The books are still open for 2010, meaning that the income statement accounts have not be closed out to retained earnings. However, note that in some instances adjusting entries have been made. Schaefer has not yet recorded its 2010 income tax expense and payable amounts so current-year tax effects may be ignored. In reviewing its records, the following information is compiled.
at December 31, 2010, Schaefer decided to change the depreciation method on its office equipment from double-declining balance to straight-line. The equipment had an original cost of $100,000 when purchased on January 1, 2008. It has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2010 under the double-declining balance method was $36,000. Schaefer has already recorded 2010 depreciation expense of $12,800 using the double-declining balance method.
1.Prepare the journal entries necessary at December 31, 2010, to record the above corrections and changes.
2. For each situation, indicate specifically how this error affected the financial statements and how the correction or adjustment would be presented in the 2010 financial statements.