/*! 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} Question 6 Define a change in estimate and ... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 22: Question 6 (page 1305)

Define a change in estimate and provide an illustration. When is a change in accounting estimate effected by a change in accounting principle?

Short Answer

Expert verified

An accounting estimate is a simple change in the realizability of an asset or liability. The second part occurs when the change in accounting estimates is inseparable from the effect of related change in principle.

Step by step solution

01

Definition of change in estimate

The change in estimate is defined as a simple change in how an individual perceives the realizability of an asset or liability鈥攆or example, changes in estimates of warranty costs.

02

Change in accounting estimate affected by the change in accounting principle

This situation occurs when the change in accounting estimates is inseparable from the effect of a related change in accounting principle.

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

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.

(Error Analysis and Correcting Entry) The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: 2017, \(147,000; 2018, \)185,000. Early in 2019, the following errors were discovered.

1. Depreciation of equipment for 2017 was overstated \(17,000.

2. Depreciation of equipment for 2018 was understated \)38,500.

3. December 31, 2017, inventory was understated \(50,000.

4. December 31, 2018, inventory was overstated \)16,200.

Instructions

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.)

(Error Analysis) When the records of Debra Hanson Corporation were reviewed at the close of 2018, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2017 and 2018.

2017 2018 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect

1. Failure to record amortization of patent in 2018.

2. Failure to record the correct amount of ending 2017 inventory. The amount was understated because of an error in calculation.

3. Failure to record merchandise purchased in 2017. Merchandise was also omitted from ending inventory in 2017 but was not yet sold.

4. Failure to record accrued interest on notes payable in 2017; that amount was recorded when paid in 2018.

5. Failure to reflect supplies on hand on the balance sheet at end of 2017.

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

(Accounting for Accounting Changes and Errors) Listed below are various types of accounting changes and errors.

______ 1. Change in a plant asset鈥檚 salvage value.

______ 2. Change due to overstatement of inventory.

______ 3. Change from sum-of-the-years鈥�-digits to straight-line method of depreciation.

______ 4. Change from presenting unconsolidated to consolidated financial statements.

______ 5. Change from LIFO to FIFO inventory method.

______ 6. Change in the rate used to compute warranty costs.

______ 7. Change from an unacceptable accounting principle to an acceptable accounting principle.

______ 8. Change in a patent鈥檚 amortization period.

______ 9. Change from completed-contract to percentage-of-completion method on construction contracts.

______ 10. Change from FIFO to average-cost inventory method.

Instructions For each change or error, indicate how it would be accounted for using the following code letters:

(a) Accounted for prospectively.

(b) Accounted for retrospectively.

(c) Neither of the above.
See all solutions

Recommended explanations on Business Studies Textbooks

Accounting

Read Explanation

International Business

Read Explanation

Family Business

Read Explanation

Strategy

Read Explanation

Introduction to Business

Read Explanation

Business Data Analytics

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.