Learning Materials
Features
Discover
Chapter 22: Question 4 (page 1305)
Identify and describe the approach the FASB requires for reporting changes in accounting principles.
FASB is an organization that regulates the accounting standards, and they believe that the best approach is retrospective.
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
Lowell Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a cash basis because of errors made by an inexperienced bookkeeper. Income statements prepared by the bookkeeper reported \(29,000 net income for 2016 and \)37,000 net income for 2017. Further examination of the records reveals that the following items were handled improperly.
1. Rent was received from a tenant in December 2016. The amount, \(1,000, was recorded as revenue at that time even though the rental pertained to 2017.
2. Salaries and wages payable on December 31 have been consistently omitted from the records of that date and have been entered as expenses when paid in the following year. The amounts of the accruals recorded in this manner were:
December 31, 2015 \)1,100
December 31, 2016 1,200
December 31, 2017 940
3. Invoices for supplies purchased have been charged to expense accounts when received. Inventories of supplies on hand at the end of each year have been ignored, and no entry has been made for them.
December 31, 2015 $1,300
December 31, 2016 940
December 31, 2017 1,420
Instructions
Prepare a schedule that will show the corrected net income for the years 2016 and 2017. All items listed should be labeled clearly. (Ignore income tax considerations.)
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.
Which of the following is not classified as an accounting change by IFRS?
(a) Change in accounting policy.
(b) Change in accounting estimate.
(c) Errors in financial statements.
(d) None of the above
Which of the following is false?
(a) GAAP and IFRS have the same absolute standard regarding the reporting of error corrections in previously issued financial statements.
(b) The accounting for changes in estimates is similar between GAAP and IFRS.
(c) Under IFRS, the impracticability exception applies both to changes in accounting principles and to the correction of errors.
(d) GAAP has detailed guidance on the accounting and reporting of indirect effects; IFRS does not.
An entry to record Purchases and related Accounts Payable of $13,000 for merchandise purchased on December 23, 2018, was recorded in January 2019. This merchandise was not included in inventory at December 31, 2018. What effect does this error have on reported net income for 2018? What entry should be made to correct for this error, assuming that the books are not closed for 2018?
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