Chapter 22: 22-1IFRS (page 1328)
Where can authoritative IFRS related to accounting changes be found?
IFRS is the set of accounting rules and authoritative for an accounting change found in IAS 8 and IAS 1.
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On January 2, 2017, \(100,000 of 11%, 10-year bonds were issued for \)97,000. The $3,000 discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July 1. What is the effect on reported net income for 2017 of this error, assuming straight-line amortization of the discount? What entry is necessary to correct for this error, assuming that the books are not closed for 2017?
Access the glossary (“Master Glossary”) to answer the following.
(a) What is a change in accounting estimate?
(b) What is a change in accounting principle?
(c) What is a restatement?
(d) What is the definition of “retrospective application”?
Taveras Co. decides at the beginning of 2017 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on January 1, 2015, and had maintained records adequate to apply the FIFO method retrospectively. Taveras concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold. Inventory Determined by Cost of Goods Sold Determined by Date LIFO Method FIFO Method LIFO Method FIFO Method January 1, 2015 \( 0 \) 0 \( 0 \) 0 December 31, 2015 100 80 800 820 December 31, 2016 200 240 1,000 940 December 31, 2017 320 390 1,130 1,100 Other information: 1. For each year presented, sales are \(3,000 and operating expenses are \)1,000. 2. Taveras provides two years of financial statements. Earnings per share information is not required. Instructions (a) Prepare income statements under LIFO and FIFO for 2015, 2016, and 2017. (b) Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2017 and 2016. (c) Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate the income statement line items for 2017 and 2016 that were affected by the change in accounting principle. (d) Prepare comparative retained earnings statements for 2016 and 2017 under FIFO. Retained earnings reported under LIFO are as follows: Retained Earnings Balance December 31, 2015 $1,200 December 31, 2016 2,200 December 31, 2017 3,070
On January 1, 2017, Millay Inc. paid \(700,000 for 10,000 shares of Genso Company’s voting common stock, which was a 10% interest in Genso. At that date, the net assets of Gensototaled \)6,000,000. The fair values of all of Genso’s identifiable assets and liabilities were equal to their book values. Millay does not have the ability to exercise significant influence over the operating and financial policies of Genso. Millay received dividends of \(1.50 per share from Genso on October 1, 2017. Genso reported net income of \)550,000 for the year ended December 31, 2017.
On July 1, 2018, Millay paid \(2,325,000 for 30,000 additional shares of Genso Company’s voting common stock which represents a 30% investment in Genso. The fair values of all of Genso’s identifiable assets net of liabilities were equal to their book values of \)6,550,000. As a result of this transaction, Millay has the ability to exercise significant influence over the operating and financial policies of Genso. Millay received dividends of \(2.00 per share from Genso on April 1, 2018, and \)2.50 per share on October 1, 2018. Genso reported net income of \(650,000 for the year ended December 31, 2018, and \)350,000 for the 6 months ended December 31, 2018.
Instructions (For both purchases, assume any excess of cost over book value is due to goodwill.)
(a) Prepare a schedule showing the income or loss before income taxes for the year ended December 31, 2017, that Millay should report from its investment in Genso in its income statement issued in March 2018.
(b) During March 2019, Millay issues comparative financial statements for 2017 and 2018. Prepare schedules showing the income or loss before income taxes for the years ended December 31, 2017 and 2018, that Millay should report from its investment in Genso.
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.
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