Chapter 22: 22-3IFRS (page 1328)
The comparative financial statement can be compared, and the difference between GAAP and IFRS makes it challenging for U.S. companies to adopt IFRS
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If a company registered with the SEC justifies a change in accounting method as preferable under the circumstances, and the circumstances change, can that company switch back to its prior method of accounting before the change? Why or why not?
You have been engaged to review the financial statements of Gottschalk Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.
1. Year-end wages payable of \(3,400 were not recorded because the bookkeeper thought that “they were immaterial.”
2. Accrued vacation pay for the year of \)31,100 was not recorded because the bookkeeper “never heard that you had to do it.”
3. Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of \(2,640 because “the amount of the check is about the same every year.” 4. Reported sales revenue for the year is \)2,120,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $103,400.
Instructions Prepare the necessary correcting entries, assuming that Gottschalk uses a calendar-year basis.
What is the indirect effect of a change in accounting principle? Briefly describe the reporting of the indirect effects of a change in accounting principle.
State how each of the following items is reflected in the financial statements. (a) Change from FIFO to LIFO method for inventory valuation purposes. (b) Charge for failure to record depreciation in a previous period. (c) Litigation won in current year, related to prior period. (d) Change in the realizability of certain receivables. (e) Write-off of receivables. (f) Change from the percentage-of-completion to the completed-contract method for reporting net income.
(Change from Fair Value to Equity) On January 1, 2017, Beyonce Co. purchased 25,000 shares (a 10% interest) in Elton John Corp. for \(1,400,000.
At the time, the book value and the fair value of John’s net assets were \)13,000,000. On July 1, 2018, Beyonce paid \(3,040,000 for 50,000 additional shares of John common stock, which represented a 20% investment in John. The fair value of John’s identifiable assets net of liabilities was equal to their carrying amount of \)14,200,000. As a result of this transaction, Beyonce owns 30% of John and can exercise significant influence over John’s operating and financial policies.
John reported the following net income and declared and paid the following dividends.
Net Income Dividend per Share
Year ended 12/31/17 \(700,000 None
Six months ended 6/30/18 500,000 None
Six months ended 12/31/18 815,000 \)1.55
Instructions
(Any excess fair value is attributed to goodwill.) Determine the ending balance that Beyonce Co. should report as its investment in John Corp. at the end of 2018
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