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Chapter 22: 22-3IFRS (page 1328)
The comparative financial statement can be compared, and the difference between GAAP and IFRS makes it challenging for U.S. companies to adopt IFRS
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Analysis of Various Accounting Changes and Errors) Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material effect on the financial statements for the current year of your business enterprise.
1. A change from the completed-contract method to the percentage-of-completion method of accounting for long-term construction-type contracts.
2. A change in the estimated useful life of previously recorded fixed assets as a result of newly acquired information.
3. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits.
4. A change from including the employer share of FICA taxes with payroll tax expenses to including it with 鈥淩etirement benefits鈥� on the income statement.
5. Correction of a mathematical error in inventory pricing made in a prior period.
6. A change from presentation of statements of individual companies to presentation of consolidated statements.
7. A change in the method of accounting for leases for tax purposes to conform with the financial accounting method. As a result, both deferred and current taxes payable changed substantially.
8. A change from the FIFO method of inventory pricing to the LIFO method of inventory pricing.
Instructions Identify the type of change that is described in each item above and indicate whether the prior year鈥檚 financial statements should be recast when presented in comparative form with the current year鈥檚 financial statements
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.
Briefly describe some of the similarities and differences between GAAP and IFRS with respect to reporting accounting changes.
What is the indirect effect of a change in accounting principle? Briefly describe the reporting of the indirect effects of a change in accounting principle.
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