Ray Solutions decided to make the following changes in its accounting policies on January 1, 2016: 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 2016. 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.

Ray Solutions decided to make the following changes in its accounting policies on January 1, 2016: 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 2016. 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.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 5MC: During 2019, White Company determined that machinery previously depreciated over a 7-year life had a...

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Shannon Corporation began operations on January 1, 2019. Financial statements for the years ended December 31, 2019 and 2020, contained the following errors: In addition, on December 31, 2020, fully depreciated machinery was sold for 10,800 cash, but the sale was not recorded until 2021. There were no other errors during 2019 or 2020, and no corrections have been made for any of the errors. Refer to the information for Shannon Corporation above. Ignoring income taxes, what is the total effect of the errors on the amount of working capital (current assets minus current liabilities) at December 31, 2020? a. working capital overstated by 4,200 b. working capital understated by 5,800 c. working capital understated by 6,000 d. working capital understated by 9,800
Koopman Company began operations on January 1, 2018, and uses they FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2020, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Koopman is subject to a 21% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Koopman had cash of 10,000, inventory of 24,000, other assets of 70,800, accounts payable of 4,500, and income taxes payable of 6,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in methods at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.
Soon after December 31, 2019, the auditor requested a depreciation schedule for trucks of Jarrett Trucking Company, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2016 to 2019, inclusive. The following data were in the Trucks account as of January 1, 2016: The Accumulated DepreciationTrucks account, previously adjusted to January 1,2016, and duly entered in the ledger, had a balance on that date of 16,460. This amount represented the straight-line depreciation on the four trucks from the respective dates of purchase, based on a 5-year life and no residual value. No debits had been made to this account prior to January 1, 2016. Transactions between January 1,2017, and December 31, 2019, and their record in the ledger were as follows: 1. July 1, 2016: Truck no. 1 was sold for 1,000 cash. The entry was a debit to Cash and a credit to Trucks, 1,000. 2. January 1, 2017: Truck no. 3 was traded for a larger one (no. 5) with a 5-year life. The agreed purchase price was 12,000. Jarrett paid the other company 1,780 cash on the transaction. The entry was a debit to Trucks, 1,780, and a credit to Cash, 1,780. 3. July 1, 2018: Truck no. 4 was damaged in a wreck to such an extent that it was sold as junk for 50 cash. Jarrett received 950 from the insurance company. The entry made by the bookkeeper was a debit to Cash, 1,000, and credits to Miscellaneous Revenue, 50, and Trucks, 950, 4. July 1, 2018: A new truck (no. 6) was acquired for 20,000 cash and debited at that amount to the Trucks account. The truck has a 5-year life. Entries for depreciation had been made at the close of each year as follows: 2016, 8,840; 2017, 5,436; 2018, 4,896; 2019, 4,356. Required: 1. Next Level For each of the 4 years, calculate separately the increase or decrease in earnings arising from the companys errors in determining or entering depreciation or in recording transactions affecting trucks. 2. Prove your work by one compound journal entry as of December 31, 2019; the adjustment of the Trucks account is to reflect the correct balances, assuming that the books have not been closed for 2019.
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.
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,…
Jupiter Ltd. follows the straight-line method of depreciation for the year 2014. It shifts to the written-down value method in 2015 and back to the straight-line method in 2016. What accounting concept is being violated? Materiality concept Going concern concept Matching concept Consistency concept
Described below are three independent and unrelated situations involving accounting changes. Each change occurs during 2016 before any adjusting entries or closing entries are prepared. a. On December 30, 2012, Rival Industries acquired its office building at a cost of $10,000,000. It has been depreciated on a straight-line basis assuming a useful life of 40 years and no residual value. Early in 2016, the estimate of useful life was revised to 28 years in total with no change in residual value. b. At the beginning of 2012, the Hoffman Group purchased office equipment at a cost of $330,000. Its useful life was estimated to be 10 years with no residual value. The equipment has been depreciated by the sum-ofthe- years’-digits method. On January 1, 2016, the company changed to the straight-line method. c. At the beginning of 2016, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change…
Soon after December 31, 2019, the auditor requested a depreciation schedule for trucks of Jarrett Trucking Company, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4 year period 2016 to 2019 inclusive. The following data were in the Trucks account as of January 1, 2016: 1. Next Level For eacl1 of the 4 years, calculate separately the increase or decrease in earnings arising from the company’s errors in determining or entering depreciation or in recording transactions affecting trucks. 2. Prove your work by one compound journal entry as of December 31, 2019; the adjustment of the Trucks account is to reflect the correct balances, assuming that the books have not been closed for 2019.
DRS Corporation changed the way it depreciates its computers from the sum-of-the-year’s-digits method to the straight-line method beginning January 1, 2016. DRS also changed its estimated residual value used in computing depreciation for its office building. At the end of 2016, DRS changed the specific subsidiaries constituting the group of companies for which its consolidated financial statements are prepared. Required: 1. For each accounting change DRS undertook, indicate the type of change and how DRS should report the change. Be specific. 2. Why should companies disclose changes in accounting principles?
On December 31, Trinkets Supply Company noted the following transactions that occurredduring 2015, some or all of which might require adjustments to the books.(a)Payment of $4,300 to suppliers was made for purchases on account during the year andwas not recorded.(b)Building and land were purchased on Jan. 2 for $190,000. The building’s fair value was$141,000 at the time of purchase. The building is being depreciated over a 30-year lifeusing the straight-line method assuming no salvage value.(c)Of the $52,000 in Accounts Receivable, 5% is estimated to be uncollectible. Currently,Allowance for Bad Debtsshows a debit balance of $200.(d)On Sept 1, $80,000 was loaned to a customer on a 12-month note with interest at anannual rate of 11%.(e)During 2015, Trinkets Supply received $15,200 in advance for services, 80% of which willbe performed in 2016. The $15,200 was credited to Sales Revenue.(f)The interest expense account was debited for all interest charges incurred during the yearand shows…
Dumb Company’s year-end is December 31, 2015 and the 2015 financial statements were authorized for issue on March 31, 2016. The entity had the following events:  On February 1, 2016, the entity determined that the total cost of an equipment purchased is P3,700,000. The equipment was purchased on November 21, 2015 but unrecorded on December 31, 2015.  On March 15, 2016, the entity discovered that the 2015 depreciation expense was overstated by P470,000.  On March 20,2016, the entity issued P100,000 ordinary shares at par of P10 per share.  On March 27, 2016, the entity filed a case against another entity for present infringement. Legal counsel assessed that it is probable that the entity will win the case for an amount of P550,000. What amount should be replaced as adjusting events on December 31, 2015
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