Chapter 22: 22-5IFRS (page 1328)
Discuss how a change in accounting policy is handled when it is impracticable to determine previous amounts
Accounting policies are the rules and regulations which are followed to maintain the financial accounts, and the previous amounts should be used.
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Indicate how the following items are recorded in the accounting records in the current year of Coronet Co. (a) Impairment of goodwill. (b) A change in depreciating plant assets from accelerated to the straight-line method. (c) Large write-off of inventories because of obsolescence. (d) Change from the cash basis to accrual basis of accounting. (e) Change from LIFO to FIFO method for inventory valuation purposes. (f) Change in the estimate of service lives for plant assets
Discuss briefly the three approaches that have been suggested for reporting changes in accounting principles.
Prior to 2017, Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2017, the company decided to change its accounting methods for manufacturing inventories to full costing by including these costs as product costs. Assuming that these costs are material, how should this change be reflected in the financial statements for 2016 and 2017?
As part of the year-end accounting process and review of operating policies, Cullen Co. is considering a change in the accounting for its equipment from the straight-line method to an accelerated method. Your supervisor wonders how the company will report this change in principle. He read in a newspaper article that the FASB has issued a standard in this area and has changed GAAP for a “change in estimate that is effected by a change in accounting principle.” (Thus, the accounting may be different from what he learned in intermediate accounting.) Your supervisor wants you to research the authoritative guidance on a change in accounting principle related to depreciation methods.
Instructions
(a) What are the accounting and reporting guidelines for a change in accounting principle related to depreciation methods?
(b) What are the conditions that justify a change in depreciation method, as contemplated by Cullen Co.?
(c) What guidance does the SEC provide concerning the impact that recently issued accounting standards will have on the financial statements in a future period?
A partial trial balance of Julie Hartsack Corporation is as follows on December 31, 2018.
Dr. Cr.
Supplies \( 2,700
Salaries and wages payable \) 1,500
Interest receivable 5,100
Prepaid insurance 90,000
Unearned rent –0–
Interest payable 15,000
Additional adjusting data:
1. A physical count of supplies on hand on December 31, 2018, totaled \(1,100.
2. Through oversight, the Salaries and Wages Payable account was not changed during 2018. Accrued salaries and wages on December 31, 2018, amounted to \)4,400.
3. The Interest Receivable account was also left unchanged during 2018. Accrued interest on investments amounts to \(4,350 on December 31, 2018.
4. The unexpired portions of the insurance policies totaled \)65,000 as of December 31, 2018.
5. \(28,000 was received on January 1, 2018, for the rent of a building for both 2018 and 2019. The entire amount was credited to rent revenue.
6. Depreciation on equipment for the year was erroneously recorded as \)5,000 rather than the correct figure of \(50,000.
7. A further review of depreciation calculations of prior years revealed that equipment depreciation of \)7,200 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.
Instructions
(a) Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.)
(b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.)
(c) Repeat the requirements for items 6 and 7, taking into account income tax effects (40% tax rate) and assuming that the books have been closed.
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