Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 22, Problem 1E
The following are independent events:
- a. Changed from the LIFO to the FIFO inventory cost flow assumption.
- b. Reduced remaining service life of machinery from 10 to 8 years.
- c. Changed from an accelerated method to the straight-line method of
depreciating assets. - d. Wrote-down inventories because of obsolescence.
- e. Received damages won in a court suit instigated 5 years ago.
- f. Discovered that costs were recorded as an expense in a previous period but should have been recorded as an item of property, plant, and equipment.
- g. Wrote down property, plant, and equipment because of closure of inefficient plants.
- h. Changed from the successful-efforts method to the full-cost accounting method for oil exploration costs.
Required:
- 1. Indicate what type of accounting change or error, if any, is represented by each of the preceding items and the method of accounting (retrospective adjustment, prospective, or prior period adjustment) for the item in the financial statements of the current year.
- 2. Next Level Indicate the effect on the financial statements of the item (e.g., which accounts or line items are affected and is the effect an increase or a decrease).
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Listed below are various types of accounting changes and errors.
________ 1. Change in a plant asset's salvage value.
________ 2. Change due to overstatement of inventory.
________ 3. Change from sum-of-the-years'-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's 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…
Answer the following question:
Which of the following is an example of a change in accounting policy?
a) Switching from the double declining balance to the straight-line method of depreciation
b) Adjusting the financial statements for an inventory count omission which occurred 2 years previously.
c) Switching from a salvage value of $10,000 to a salvage value of $4,000 in the 3rd year of the equipment’s 8-year life.
d) Using 5% for the allowance for bad debts instead of 3% because of the increased possibility of bankruptcy by customers.
e) None of the other answers are correct.
The following are independent errors made by a company that uses a periodic inventory system:
Failure to record a purchase of $10,000 inventory on credit; however, inventory was properly counted at the end of the period. Assume the error was discovered prior to any payment for the purchase.
Expensed the purchase of a machine of $50,000. The machine has a 10 year useful life with no salvage value.
Failure to accrue wages of $8,000. Wages had not been paid at the time the error was discovered.
Failure to record an allowance for uncollectibles of $25,000. The error was discovered prior to the accrual for bad debt in the following year.
Included collections in advance of $100,000 as revenue.
Included payments of $12,000 advance as expenses.
Failure to accrue warranty costs of $14,000.
Failure to record depreciation expense of $6,000 on assets purchased during the year.
Required:
Prepare the correcting journal entries if the company discovers each error in the year after it is made.…
Chapter 22 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 22 - Prob. 1GICh. 22 - Prob. 2GICh. 22 - Prob. 3GICh. 22 - What steps are necessary to apply the...Ch. 22 - Prob. 5GICh. 22 - Prob. 6GICh. 22 - Prob. 7GICh. 22 - Prob. 8GICh. 22 - Define a change in estimate. What is the proper...Ch. 22 - Prob. 10GI
Ch. 22 - How is a change in depreciation method accounted...Ch. 22 - Describe a change in a reporting entity. How does...Ch. 22 - Prob. 13GICh. 22 - Prob. 14GICh. 22 - Prob. 15GICh. 22 - Prob. 16GICh. 22 - Prob. 17GICh. 22 - Prob. 18GICh. 22 - Prob. 19GICh. 22 - Prob. 20GICh. 22 - The cumulative effect of an accounting change...Ch. 22 - When a change in accounting principle is made...Ch. 22 - Prob. 3MCCh. 22 - A change in the expected service life of an asset...Ch. 22 - During 2019, White Company determined that...Ch. 22 - Generally, how should a change in accounting...Ch. 22 - On January 2, 2017, Garr Company acquired...Ch. 22 - A company has included in its consolidated...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Prob. 1RECh. 22 - Heller Company began operations in 2019 and used...Ch. 22 - Refer to RE22-2. Assume the pretax cumulative...Ch. 22 - Refer to RE22-2. Assume Heller Company had sales...Ch. 22 - Bloom Company had beginning unadjusted retained...Ch. 22 - Suppose that Blake Companys total pretax...Ch. 22 - Bliss Company owns an asset with an estimated life...Ch. 22 - At the end of 2019, Framber Company received 8,000...Ch. 22 - At the end of 2019, Cortex Company failed to...Ch. 22 - At the end of 2019, Jayrad Company paid 6,000 for...Ch. 22 - At the end of 2019, Manny Company recorded its...Ch. 22 - Abrat Company failed to accrue an allowance for...Ch. 22 - The following are independent events: a. Changed...Ch. 22 - Prob. 2ECh. 22 - The following are independent events: a. A...Ch. 22 - Change in Inventory Cost Flow Assumption At the...Ch. 22 - Fava Company began operations in 2018 and used the...Ch. 22 - Berg Company began operations on January 1, 2019,...Ch. 22 - Prob. 7ECh. 22 - In 2020, Frost Company, which began operations in...Ch. 22 - Gundrum Company purchased equipment on January 1,...Ch. 22 - Prob. 10ECh. 22 - On January 1, 2014, Klinefelter Company purchased...Ch. 22 - The following are independent errors made by a...Ch. 22 - The following are independent errors made by a...Ch. 22 - Refer to the information in E22-13. Required:...Ch. 22 - The following are independent errors: a. In...Ch. 22 - Dudley Company failed to recognize the following...Ch. 22 - Prob. 1PCh. 22 - Prob. 2PCh. 22 - Koopman Company began operations on January 1,...Ch. 22 - Schmidt Company began operations on January 1,...Ch. 22 - Prob. 5PCh. 22 - Kraft Manufacturing Company manufactures two...Ch. 22 - Jackson Company has decided to issue common stock...Ch. 22 - At the beginning of 2020, Holden Companys...Ch. 22 - At the end of 2020, while auditing Sandlin...Ch. 22 - At the beginning of 2020, Tanham Company...Ch. 22 - A review of Anderson Corporations books indicates...Ch. 22 - Prob. 12PCh. 22 - Gray Companys financial statements showed income...Ch. 22 - Prob. 14PCh. 22 - There are three types of accounting changes:...Ch. 22 - Prob. 2CCh. 22 - Berkeley Company, a manufacturer of many different...Ch. 22 - When the FASB issues a new generally accepted...Ch. 22 - It is important in accounting theory to be able to...Ch. 22 - Prob. 6CCh. 22 - Prob. 7CCh. 22 - Prob. 8CCh. 22 - Prob. 9CCh. 22 - Sometimes a business entity may change its method...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The following are independent errors made by a company that uses the periodic inventory system: a. Goods in transit, purchased on credit and shipped FOB destination, 10,000, were included in purchases but not in the physical count of ending inventory. b. Purchase of a machine for 2,000 was expensed. The machine has a 4-year life, no residual value, and straight-line depreciation is used. c. Wages payable of 2,000 were not accrued. d. Payment of next years rent, 4,000, was recorded as rent expense. e. Allowance for doubtful accounts of 5,000 was not recorded. The company normally uses the aging method. f. Equipment with a book value of 70,000 and a fair value of 100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for 129,960 was received and recorded at its face value, and a gain of 59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest. Required: 1. Next Level Indicate the effect of each of the preceding errors on the companys assets, liabilities, shareholders equity, and net income in the year in which the error occurs. State whether the error causes an overstatement (+), an understatement (), or no effect (NE). 2. Prepare the correcting journal entry or entries required at the beginning of the year for each of the preceding errors, assuming the company discovers the error in the year after it was made. Ignore income taxes.arrow_forwardIf Barcelona Companys ending inventory was actually $122,000, but the cost of consigned goods, with a cost value of $20,000 were accidentally included with the company assets, when making the year-end inventory adjustment, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?arrow_forwardConsider the following situations and determine (1) which type of liability should be recognized (specific account), and (2) how much should be recognized in the current period (year). A. A business depreciates a building with a book value of $12,000, using straight-line depreciation, no salvage value, and a remaining useful life of six years. B. An organization has a line of credit with a supplier. The company purchases $35,500 worth of inventory on credit. Terms of purchase are 3/20, n/60. C. An employee earns $1,000 in pay and the employer withholds $46 for federal income tax. D. A customer pays $4,000 in advance for legal services. The lawyer has previously recognized 30% of the services as revenue. The remainder is outstanding.arrow_forward
- If Wakowski Companys ending inventory was actually $86,000 but was adjusted at year end to a balance of $68,000 in error, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?arrow_forwardBarilgaon Company purchased a significant amount of raw materials inventory for a new productthat it is manufacturing. It uses the LCNRV rule for these raw materials. The net realizable valueof the raw materials is below the original cost. Barilgaon uses the FIFO inventory method for theseraw materials. In the last 2 years, each purchase has been at a lower price than the previouspurchase, and the ending inventory quantity for each period has been higher than the beginninginventory quantity for that period.Required:i) At which amount should Barilgaon’s raw materials inventory be reported on the statement offinancial position? Why?ii) In general, why is the LCNRV rule used to report inventory?iii) What would have been the effect on ending inventory and cost of goods sold had Barilgaonused the average-cost inventory method instead of the FIFO inventory method for the rawmaterials? Why?arrow_forwardOgala Corporation purchased a significant amount of raw materials inventory for a new product that it is manufacturing. Ogala uses the LCNRV rule for these raw materials. The net realizable value of the raw materials is below the original cost.Ogala uses the FIFO inventory method for these raw materials. In the last 2 years, each purchase has been at a lower price than the previous purchase, and the ending inventory quantity for each period has been higher than the beginning inventory quantity for that period.Instructions(a) At which amount should Ogala’s raw materials inventory be reported on the balance sheet? Why?(b) In general, why is the LCNRV rule used to report inventory?(c) What would have been the effect on ending inventory and cost of goods sold had Ogala used the average-cost inventory method instead of the FIFO inventory method for the raw materials? Why?arrow_forward
- For each of the following independent scenarios, determine if each event is an accounting change, error, or neither. For each accounting change or error determine the method that should be used to account for the change or error in the current year financial statements: retrospective adjustment, prospective, or prior period adjustment. Change from LIFO to FIFO Inventory Method. - NEITHER Change in useful life of equipment from 10 years to 7 years. Accounting Error Change in depreciation method from Double Declining Balance to Straight Line. Write-down of inventory due to obsolescence. Settlement of lawsuit and receipt of damages from 5 years prior. Write-off of patent due to competing product. Prior year costs were recorded as expenses instead of Property, Plant and Equipment. Change in Allowance for Uncollectible Accounts due to increase in unpaid Accounts Receivable, changes estimate from 4% of credit sales to 6%.arrow_forwardOn January 1, 2016, Al's Sporting Goods purchased store fixtures at a cost of $180,000. The anticipated service life was ten years with no residual value. Al's has been using the double-declining balance method, but in 2018 adopted the straight-line method because the company believes it provides a better measure of income. Al's has a December 31 year-end. The journal entry to record depreciation for 2018 is ______.arrow_forwardgala Corporation purchased a significant amount of raw materials inventory for a new product that it is manufacturing. Ogala uses the LCNRV rule for these raw materials. The net realizable value of the raw materials is below the original cost. Ogala uses the FIFO inventory method for these raw materials. In the last 2 years, each purchase has been at a lower price than the previous purchase, and the ending inventory quantity for each period has been higher than the beginning inventory quantity for that period. Instructions a. At which amount should Ogala’s raw materials inventory be reported on the balance sheet? Why? b. In general, why is the LCNRV rule used to report inventory? c. What would have been the effect on ending inventory and cost of goods sold had Ogala used the average-cost inventory method instead of the FIFO inventory method for the raw materials? Why?arrow_forward
- The following is an independent error made by a company that uses the periodic inventory system: Equipment with a book value of $70,000 and a fair value of $100,000 was sold at the beginning of the year. A 2-year, non-interest-bearing note for $129,960 was received and recorded at its face value, and a gain of $59,960 was recognized. No interest revenue was recorded and 14% is a fair rate of interest. What is the journal entry needed to correct the sale of equipment? Ignore income taxesWhat is the journal entry adjustment needed to correct interest related to the note?arrow_forwardCompany B has outdated inventory costing $300,000 in the warehouse that is held for over 2 years. It is expected that the inventory would be sold to the customers at only 50% of the cost next year. The client has a net income of $2,000,000. Management claimed that the inventory has not been sold and therefore it should be continued to record at cost. Q) For Company B, draft the opinion paragraph and any corresponding basis of opinion paragraph (if any). Effects on financial statements from any violation on the accounting standards should be calculated and stated in the basis of opinion paragraph if applicable. Assume tax rate of 10% when necessary.arrow_forwardIn fiscal year 2020, the company had formed an inventory impairment of 2000. In fiscal year 2021, the company considered that the required amount of accumulated impairment amounted to 1200 and thus reversed the difference in results. However, according to the documented opinion of the Chartered Accountant, the required amount of accumulated impairment in the year 2021 amounted to the amount of 2500. Based on the above if the amount of 2021 net worth is 15000, the actual net worth amount is 31/12/2021?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Century 21 Accounting Multicolumn Journal
Accounting
ISBN:9781337679503
Author:Gilbertson
Publisher:Cengage
Asset impairment explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=lWMDdtHF4ZU;License: Standard Youtube License