Learning Materials
Features
Discover
Chapter 22: 22-2IFRS (page 1328)
Briefly describe some of the similarities and differences between GAAP and IFRS with respect to reporting accounting changes.
Similarities are the accounting of change in estimates, and the difference is in the exception of impracticality in GAAP and IFRS.
Over 30 million students worldwide already upgrade their learning with 91影视!
All the tools & learning materials you need for study success - in one app.
Get started for free
Sesame Company purchased a computer system for \(74,000 on January 1, 2016. It was depreciated based on a 7-year life and an \)18,000 salvage value. On January 1, 2018, Sesame revised these estimates to a total useful life of 4 years and a salvage value of $10,000. Prepare Sesame鈥檚 entry to record 2018 depreciation expense. Sesame uses straight-line depreciation.
On December 31, 2017, before the books were closed, the management and accountants of Madrasa Inc. made the following determinations about three pieces of equipment.
1. Equipment A was purchased January 2, 2014. It originally cost \(540,000 and, for depreciation purposes, the straight-line method was originally chosen. The asset was originally expected to be useful for 10 years and have a zero salvage value. In 2017, the decision was made to change the depreciation method from straight-line to sum-of-the-years鈥�-digits, and the estimates relating to useful life and salvage value remained unchanged.
2. Equipment B was purchased January 3, 2013. It originally cost \)180,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero residual value. In 2017, the decision was made to shorten the total life of this asset to 9 years and to estimate the residual value at \(3,000.
3. Equipment C was purchased January 5, 2013. The asset鈥檚 original cost was \)160,000, and this amount was entirely expensed in 2013. This particular asset has a 10-year useful life and no residual value. The straight-line method was chosen for depreciation purposes.
Additional data:
1. Income in 2017 before depreciation expense amounted to \(400,000.
2. Depreciation expense on assets other than A, B, and C totaled \)55,000 in 2017.
3. Income in 2016 was reported at \(370,000.
4. Ignore all income tax effects.
5. 100,000 shares of common stock were outstanding in 2016 and 2017.
Instructions
(a) Prepare all necessary entries in 2017 to record these determinations.
(b) Prepare comparative retained earnings statements for Madrasa Inc. for 2016 and 2017. The company had retained earnings of \)200,000 at December 31, 2015.
Oliver Corporation has owned stock of Conrad Corporation since 2014. At December 31, 2017, its balances related to this investment were:
Equity Investments \(185,000
Fair Value Adjustment (AFS) 34,000 Dr.
Accumulated Unrealized Holding Gain or Loss鈥擨ncome (recorded in Retained Earnings) 34,000 Cr.
On January 1, 2018, Oliver purchased additional stock of Conrad Company for \)475,000 and now has significant influence over Conrad. If the equity method had been used in 2014鈥�2017, Oliver鈥檚 share of income would have been $33,000 greater than dividends received. Prepare Oliver鈥檚 journal entries to record the purchase of the investment and the change to the equity method.
In January 2017, installation costs of \(6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of \)30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At December 31, 2018, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2018. What entry(ies) should be made in 2018 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2018 and depreciation expense has not yet been recorded for 2018.
Holtzman Company is in the process of preparing its financial statements for 2017. Assume that no entries for depreciation have been recorded in 2017. The following information related to depreciation of fixed assets is provided to you.
1. Holtzman purchased equipment on January 2, 2014, for \(85,000. At that time, the equipment had an estimated useful life of 10 years with a \)5,000 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2017, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a \(3,000 salvage value.
2. During 2017, Holtzman changed from the double-declining-balance method for its building to the straight-line method. The building originally cost \)300,000. It had a useful life of 10 years and a salvage value of \(30,000. The following computations present depreciation on both bases for 2015 and 2016. 2016 2015 Straight-line \)27,000 \(27,000 Declining-balance 48,000 60,000
3. Holtzman purchased a machine on July 1, 2015, at a cost of \)120,000. The machine has a salvage value of \(16,000 and a useful life of 8 years. Holtzman鈥檚 bookkeeper recorded straight-line depreciation in 2015 and 2016 but failed to consider the salvage value.
Instructions (a) Prepare the journal entries to record depreciation expense for 2017 and correct any errors made to date related to the information provided. (Ignore taxes.)
(b) Show comparative net income for 2016 and 2017. Income before depreciation expense was \)300,000 in 2017, and was $310,000 in 2016. (Ignore taxes.)
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Flashcards 
91影视 AI 
Notes 
Study Plans 
Study Sets 
Find a degree 
Magazine