/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 3CA The following are three independ... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 22: 3CA (page 1322)

The following are three independent, unrelated sets of facts relating to accounting changes.

Situation 1: Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Sanford president, B. J. Jimenez, is willing to change to the accrual method of revenue recognition.

Situation 2: Hopkins Co. decides in January 2018 to change from FIFO to weighted-average pricing for its inventories.

Situation 3: Marshall Co. determined that the depreciable lives of its fixed assets are too long at present to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years.

Instructions

For each of the situations described, provide the information indicated below.

(a) Type of accounting change.

(b) Manner of reporting the change under current generally accepted accounting principles, including a discussion where applicable of how amounts are computed.

(c) Effect of the change on the balance sheet and income statement

Short Answer

Expert verified

All types of accounting changes are explained with the manner of reporting and their effect on financial statements.

Step by step solution

01

Part A

1. Correct error

2. Change in accounting principle

3. Change in accounting estimate

02

Part B

Manner of reporting

  1. Errors are retrospective and must include a restatement of financials.
  2. It will be reported as a retrospective change, and its calculation requires the previous financial statements to be calculated if the principle were used.
  3. It is reported as the change going forward.
03

Effect on the balance sheet and income statement

  1. It will affect the income statement of the company as noncash revenues are also recorded.
  2. It will affect the income statement as it will affect the cost of goods sold and closing inventory in the balance sheet.
  3. It will affect the income statement (depreciation expense) and the book value of the asset on the balance sheet.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Kathleen Cole Inc. acquired the following assets in January of 2015.

Equipment, estimated service life, 5 years; salvage value, \(15,000 \)525,000

Building, estimated service life, 30 years; no salvage value $693,000

The equipment has been depreciated using the sum-of-the-years鈥�-digits method for the first 3 years for financial reporting purposes. In 2018, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method.

Instructions (a) Prepare the general journal entry to record depreciation expenses for the equipment in 2018.

(b) Prepare the journal entry to record depreciation expenses for the building in 2018. (Round all computations to two decimal places.)

Indicate the effect鈥擴nderstate, Overstate, No Effect鈥攖hat each of the following errors has on 2017 net income and 2018 net income. 2017 2018 (a) Equipment (with a useful life of 5 years) was purchased and expensed in 2015. (b) Wages payable were not recorded at 12/31/17. (c) Equipment purchased in 2017 was expensed. (d) 2017 ending inventory was overstated. (e) Patent amortization was not recorded in 2018.

How should consolidated financial statements be reported this year when statements of individual companies were presented last year?

Presented below are the comparative income and retained earnings statements for Denise Habbe Inc. for the years 2017 and 2018.

2018 2017 Sales \(340,000 \)270,000 Cost of sales 200,000 142,000 Gross profit 140,000 128,000 Expenses 88,000 50,000 Net income \( 52,000 \) 78,000 Retained earnings (Jan. 1) \(125,000 \) 72,000 Net income 52,000 78,000 Dividends (30,000) (25,000) Retained earnings (Dec. 31) \(147,000 \)125,000

The following additional information is provided: 1. In 2018, Denise Habbe Inc. decided to switch its depreciation method from sum-of-the-years鈥� digits to the straight-line method. The assets were purchased at the beginning of 2017 for \(100,000 with an estimated useful life of 4 years and no salvage value. (The 2018 income statement contains depreciation expense of \)30,000 on the assets purchased at the beginning of 2017.) 2. In 2018, the company discovered that the ending inventory for 2017 was overstated by $24,000; ending inventory for 2018 is correctly stated.

Instructions Prepare the revised retained earnings statement for 2017 and 2018, assuming comparative statements. (Ignore income taxes.)

Simmons Corporation owns stock of Armstrong, Inc. Prior to 2017, the investment was accounted for using the equity method. In early 2017, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2017, Armstrong earned net income of \(80,000 and paid dividends of \)95,000. Prepare Simmons鈥檚 entries related to Armstrong鈥檚 net income and dividends, assuming Simmons now owns 10% of Armstrong鈥檚 stock.
See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Communication

Read Explanation

Change Management

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

Introduction to Business

Read Explanation

International Business

Read Explanation

Accounting

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.