Identify for each item below the type of change and the reporting approach Wagner would use. Type of Change (choose one) Reporting Approach (choose one) P. E. EP. X. N. Change in accounting principle Change in accounting estimate Change in estimate resulting from a change in principle Correction of an error Neither an accounting change nor an accounting error. R. Retrospective approach P. Prospective approach

Identify for each item below the type of change and the reporting approach Wagner would use. Type of Change (choose one) Reporting Approach (choose one) P. E. EP. X. N. Change in accounting principle Change in accounting estimate Change in estimate resulting from a change in principle Correction of an error Neither an accounting change nor an accounting error. R. Retrospective approach P. Prospective approach

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter15: Audit Reports On Financial Statements

Section: Chapter Questions

Problem 45RSCQ: The accounting and auditing literature discusses several different types of accounting changes. For...

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The accounting and auditing literature discusses several different types of accounting changes. For each of the changes listed below (a. through c.), indicate whether the auditor should add a paragraph to the audit report, assuming that the change had a material effect on the financial statements and was properly justified, accounted for, and disclosed. Assume that the organization is a U.S. non-public company. a. Change from one GAAP to another GAAP b. Change in accounting estimate not affected by a change in accounting principle c. Change in accounting estimate affected by a change in accounting principle d. Correction of an error c. Change from non-GAAP to GAAP (a special case of correction of an error)
When the FASB issues a new generally accepted accounting principle, it may require companies to apply the new principle prospectively, or to account for the change by the retrospective adjustment method. Required: Why do you think that the FASB requires one of two different transition methods when a company adopts a newly required accounting principle? Do you agree with the use of two alternative methods?
At the beginning of 2020, Tanham Company discovered the following errors made in the preceding 2 years: Reported net income was 27,000 in 2018 and 35,000 in 2019. The allowance for doubtful accounts had a zero balance at the beginning of 2018. No accounts were written off during 2018 or 2019. Ignore income taxes. Required: 1. What is the correct net income for 2018 and 2019? 2. Prepare the adjusting journal entry in 2020 to correct the errors.
Choose one of the three situations below and provide the following information: a) type of change; b) Manner of reporting the change under the 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. Hopkins Co. decides in January 2021 to change from FIFO to weighted-average pricing for its inventories.
When it is difficult to distinguish between a change of estimate and a change in accounting policy, then an entity should (a) Treat the entire change as a change in estimate with appropriate disclosure. (b) Apportion, on a reasonable basis, the relative amounts of change in estimate and the change in accounting policy and treat each one accordingly. (c) Treat the entire change as a change in accounting policy. (d) Since this change is a mixture of two types of changes, it is best if it is ignored in the year of the change; the entity should then wait for the following year to see how the change develops and then treat it accordingly.
On January 2, 2019, Quo Inc. hired Reed as its controller. During the year， Reed, working closely with Quo’s president and ottside accountants, made changes in accounting policies, corrected several errors dating from 2018 and before, and instituted new accounting policies. Quo's 2019 financial statements will be presented in comparative form with its 2018 financial statements. Items a through i represent Quo’s transactions. 1. Indicate how Quo should classify each transaction. 2. Indicate the proper accounting treatment ( retrospective adjustment, prior period adjustment, prospective) for each transaction.
Choose one of the three situations below and provide the following information: a) type of change; b) Manner of reporting the change under the 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. 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 2021 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 revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all its existing fixed assets by 5…
During 2022, its first year of operations as a delivery service, Shamrock Corp. entered into the following transactions. 1. 2. 3. 4. 5. 6. 7. 8. 9. Using the following tabular analysis, show the effect of each transaction on the accounting equation. Put explanations for changes to revenues or expenses in the right-hand margin. (If a transaction results in a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.) (1) Issued shares of common stock to investors in exchange for $90,000 in cash. Borrowed $40,500 by issuing a note. Purchased delivery trucks for $54,000 cash. Performed services for customers for $14,400 cash. Purchased supplies for $4,230 on account. Paid rent of $4,680. Performed services on account for $9,000. Paid salaries of $25,200. Paid a dividend of $9,900 to shareholders. (2) $ Cash $ Accounts Receivable Assets + $ Supplies $…
Listed below are the current Accounting Assumptions and Principles Economic Entity Assumption Monetary Unit Assumption Historical Cost Principle Going Concern Assumption Revenue Recognition Principle Full Disclosure Principle Time Period Assumption Matching Principle Required: For the following situations, identify whether the situation represents a violation or a correct application of GAAP, and which assumption/principle is applicable. a. In May 2021, Regent Corporation recorded as revenue $5,000 received in advance from a customer for a job that would be completed in June 2021. Violation: (Yes/No) Applicable Assumption/Principle: b. Sally Maze made sure to keep her personal expenditures separate from her marketing company books.…
Which of the following statements about a change in accounting estimate is not true? A. A change in accounting estimate can only be made when it is required to comply with an accounting standard or interpretation. B. Changes in accounting estimates result from new information or new developments. C. The effects of a change in accounting estimate should be applied prospectively. D. A change in estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset.
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 2021 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,…
vRay Solutions decided to make the following changes in its accounting policies on January 1, 2018:a. Changed from the cash to the accrual basis of accounting for recognizing revenue on its service contracts.b. Adopted straight-line depreciation for all future equipment purchases, but continued to use accelerated depreciation for all equipment acquired before 2018.c. Changed from the LIFO inventory method to the FIFO inventory method.Required:For each accounting change Ray undertook, indicate the type of change and how Ray should report the change.Be specific.