Whaley Distributors is a wholesale distributor of electronic components

Whaley Distributors is a wholesale distributor of electronic components. Financial statements for the years ended December 31, 2011 and 2012, reported the following amounts and subtotals ($ in millions):

Assets

Liabilities

Shareholders'
Equity

Net Income

Expenses

  2011

$

760

$

340

$

420

$

220

$

152

  2012

840

410

430

240

177

In 2013 the following situations occurred or came to light:

a.

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:

  2011 inventory

Overstated by

$

12.2

million

  2012 inventory

Understated by

$

10.2

million

b.

A liability was accrued in 2011 for a probable payment of $7.4 million in connection with a lawsuit ultimately settled in December 2013 for $4.2 million.

c.

A patent costing $19.2 million at the beginning of 2011, expected to benefit operations for a total of six years, has not been amortized since acquired.

d.

Whaley’s conveyer equipment was depreciated by the sum-of-the-years’-digits (SYD) basis since it was acquired at the beginning of 2011 at a cost of $33.0 million. It has an expected useful life of five years and no expected residual value. At the beginning of 2013, Whaley decided to switch to straight-line depreciation.