Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2016, and 2017, reported the following amounts and subtotals ($ in millions): Assets Liabilities Shareholders' Equity Net Income Expenses 2016 $ 740 $ 330 $ 410 $ 210 $ 150 2017 820 400 420 230 175 In 2018, the following situations occurred or came to light: Internal auditors discovered that ending inventories reported on the financial statements the two previous years were misstated due to faulty internal controls. The errors were in the following amounts:
2016 inventory Overstated by $ 12 million
2017 inventory Understated by $ 10 million
b. A liability was accrued in 2016 for a probable payment of $7 million in connection with a lawsuit ultimately settled in December 2017 for $4 million.
c. A patent costing $18 million at the beginning of 2016, expected to benefit operations for a total of six years, has not been amortized since acquired.
d. Whaley’s conveyor equipment was depreciated by the sum-of-the-years’-digits (SYD) basis since it was acquired at the beginning of 2016 at a cost of $30 million. It has an expected useful life of five years and no expected residual value. At the beginning of 2018, Whaley decided to switch to straight-line depreciation.
For each situation:
1. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2016 related to the situation described. (Ignore tax effects.) (Enter your answers in millions. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
2. Determine the amounts to be reported for each of the five items shown above from the 2016 and 2017 financial statements when those amounts are reported again in the 2016–2018 comparative financial statements. (Do not round intermediate calculations. Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions.)