Intermediate Accounting: P22-3 Penn Company is in the process of adjusting

Intermediate Accounting 
Week 8 
P22-3 Error Corrections and Accounting Changes 
Penn Company is in the process of adjusting and correcting its books at the end of 2010. In reviewing its records, the following information is compiled. 
1. Penn has failed to accrue sales commission’s payable at the end of each of the last 2 years, as follows. 
31-Dec-09 $3,500 
31-Dec-10 $2,500 
2. In reviewing the December 31, 2010, inventory, Penn discovered errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows: 
31-Dec-08 Understated $16,000 
31-Dec-09 Understated $19,000 
31-Dec-10 Overstated $6,700 
Penn has already made an entry that established December 31, 2010, inventory amount. 
3. At December 31, 2010, Penn decided to change the depreciation method on its office equipment from double-declining balance to straight-line .using the double –declining balance method. 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. Penn has already recorded 2010 depreciation expense of $12,800. 
4. Before 2010, Penn accounted for its income from long-term construction contracts on the completed-contract basis. Early in 2010, Penn changed to the percentage-of-completion basis for accounting purposes. It continues to use the completed-contract method for tax purposes. Income for 2010 has been recorded using the percentage-of-completion method. The following information is available: 
Pretax Income 
% of Completion Completed Contract
Prior to 2010 150,000 105,000 
2010 60,000 20,000 

Instructions: 
Prepare the journal entries necessary at December 31, 2010, to record the above corrections and changes. The books are still open for 2010. The income tax rate is 40%. Penn has not yet recorded its 2010 income tax expense and payable amounts co current-year effects may be ignored/ Prior-year tax effects must be considered in line 4.
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