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Chapter 22: 22-10BE (page 1307)

Palmer Co. is evaluating the appropriate accounting for the following items. 1. Management has decided to switch from the FIFO inventory valuation method to the LIFO inventory valuation method for all inventories. 2. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior year鈥檚 physical inventory sheets for an entire warehouse were mislaid and excluded from last year鈥檚 count. 3. Palmer鈥檚 Custom Division manufactures large-scale, custom-designed machinery on a contract basis. Management decided to switch from the completed-contract method to the percentage-of-completion method of accounting for longterm contracts. Identify and explain whether each of the above items is a change in accounting principle, a change in estimate, or an error

Short Answer

Expert verified

The first part is a change in accounting principle, the second part is a change due to an error, and the third part is the change in accounting principle

Step by step solution

01

First Part

It is a change in accounting principles. In this case, the company is changing its policy of inventory valuation from FIFO to LIFO.

02

Second Part

It is a change due to an error. There was an error in recording the last year鈥檚 count.

03

Third Part

It is the change in accounting principles. The company is changing the accounting method from the completed-contract method to the percentage-of-completion method

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Most popular questions from this chapter

In 2017, Bailey Corporation discovered that equipment purchased on January 1, 2015, for $50,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 30%. Prepare Bailey鈥檚 2017 journal entry to correct the error. Bailey uses straight-line depreciation

Shannon, Inc., changed from the LIFO cost flow assumption to the FIFO cost flow assumption in 2017. The increase in the prior year鈥檚 income before taxes is $1,200,000. The tax rate is 40%. Prepare Shannon鈥檚 2017 journal entry to record the change in accounting principle.

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Joy Cunningham Co. purchased a machine on January 1, 2015, for $550,000. At that time, it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2018, the firm鈥檚 accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. At present, the company uses the sum-of-the-years鈥�-digits method for depreciating equipment. Instructions Prepare the general journal entries that should be made at December 31, 2018, to record these events. (Ignore tax effects.)
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