You have been assigned to examined the financial statements of Granula, Inc.

for the year ended

December 31, 2016. Your examination reveals the following situation:

1. In January 1, 2015, Granula, Inc. purchased an equipment for $120,000 with estimated
useful life of 8 years, no residual value. It expensed this equipment in 2015. Granula, Inc.
typically uses straight-line depreciation for all fixed assets.
2. A $8,000 insurance premium paid on January 1, 2015, for a policy that expires on January 1,
2016. It was charged to insurance expense.
3. Merchandise costing $9,350 was in warehouse at December 31, 2015. But was incorrectly
omitted from physical count at that date. Granula, Inc. uses periodic inventory method.
4. Interest revenue of $7,300 was not accrued at the end of 2015. It was recorded when
received in February, 2016.
5. Because the bookkeeper thought that the year-end salaries and wages payable of $4,000
were immaterial, thus the bookkeeper not recorded it. According to the managerial
judgment, these salaries and wages payable fortunately must be accrued.
6. On February 2015, Granula, Inc. sold a machinery costing $56,000 for $35,500. At the date of
sale, the machinery had accumulated depreciation of $28,000. The company recorded the
cash received as miscellaneous income in 2015. It continued to record depreciation for this
machinery in both 2015 and 2016 at the rate of 12.5% of cost.
7. On January 1, 2014, Granula purchased machinery for $98,000. The depreciation method
was straight-line. That machinery has useful stimated life 8 years and $18,000 residual value.
This year, on January 2016, company revised these estimates. Total useful estimated life
become 5 years and a residual value become $12,000.
8. Before 2016, Granula used the average cost method for pricing inventory. Management is
contemplating a change in inventory methods for 2016. The income ax rate is 40%. The
following information is available.

Pretax Income
Average Cost FIFO Method
Method
2014 $17,000 $20,000
2015 19,000 22,000
2016 21,000 24,000

Instruction: Prepare the journal entries necessary at December 31, 2016. The books are still open
for 2016.