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Chapter 22: Q2ISTQ. (page 1328)

Which of the following is not classified as an accounting change by IFRS?

(a) Change in accounting policy.

(b) Change in accounting estimate.

(c) Errors in financial statements.

(d) None of the above

Short Answer

Expert verified

The correct answer is option C, as accounting error is not classified as the accounting change in IFRS

Step by step solution

01

Correct Answer

The correct answer is for this question is Option C.

02

Explanation

A change in accounting error in the financial statement is not classified as an accounting change. The IFRS considers the accounting change as the only change in accounting policy and change in accounting estimates

03

Explanation of the incorrect options

The Change in accounting policy and the change in accounting estimate is considered or classified as accounting change.

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Most popular questions from this chapter

Palmer Co. is evaluating the appropriate accounting for the following items. 1. Management has decided to switch from the FIFO inventory valuation method to the LIFO inventory valuation method for all inventories. 2. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior year’s physical inventory sheets for an entire warehouse were mislaid and excluded from last year’s count. 3. Palmer’s Custom Division manufactures large-scale, custom-designed machinery on a contract basis. Management decided to switch from the completed-contract method to the percentage-of-completion method of accounting for longterm contracts. Identify and explain whether each of the above items is a change in accounting principle, a change in estimate, or an error

Dan Aykroyd Corp. was a 30% owner of Steve Martin Company, holding 210,000 shares of Martin’s common stock on December 31, 2016. The investment account had the following entries.

Investment in Martin

1/1/15 Cost \(3,180,000 12/6/15 Dividend received \)150,000

12/31/15 Share of income 390,000 12/5/16 Dividend received 240,000

12/31/16 Share of income 510,000

On January 2, 2017, Aykroyd sold 126,000 shares of Martin for \(3,440,000, thereby losing its significant influence. During the year 2017, Martin experienced the following results of operations and paid the following dividends to Aykroyd.

Martin Dividends Paid Income (Loss) to Aykroyd 2017 \)300,000 \(50,400

At December 31, 2017, the fair value of Martin shares held by Aykroyd is \)1,570,000. This is the first reporting date since the January 2 sale.

Instructions (a) What effect does the January 2, 2017, transaction have upon Aykroyd’s accounting treatment for its investment in Martin?

(b) Compute the carrying amount of the investment in Martin as of December 31, 2017 (prior to any fair value adjustment).

(c) Prepare the adjusting entry on December 31, 2017, applying the fair value method to Aykroyd’s long-term investment in Martin Company securities.

Gordon Company started operations on January 1, 2012, and has used the FIFO method of inventory valuation since its inception. In 2018, it decides to switch to the average-cost method. You are provided with the following information.

Net Income Retained Earnings (Ending Balance) Under FIFO Under Average-Cost Under FIFO 2012 \(100,000 \) 90,000 $100,000 2013 70,000 65,000 160,000 2014 90,000 80,000 235,000 2015 120,000 130,000 340,000 2016 300,000 290,000 590,000 2017 305,000 310,000 780,000

Instructions (a) What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014?

(b) What is the beginning retained earnings balance at January 1, 2017, if Gordon prepares comparative financial statements starting in 2017?

(c) What is the beginning retained earnings balance at January 1, 2018, if Gordon prepares single-period financial statements for 2018?

(d) What is the net income reported by Gordon in the 2017 income statement if it prepares comparative financial statements starting with 2015?
  1. On January 1, 2014, Jackson Company purchased a building and equipment that have the following useful lives, salvage values, and costs. Building, 40-year estimated useful life, \(50,000 salvage value, \)800,000 cost Equipment, 12-year estimated useful life, \(10,000 salvage value, \)100,000 cost The building has been depreciated under the double-declining-balance method through 2017. In 2018, the company decided to switch to the straight-line method of depreciation. Jackson also decided to change the total useful life of the equipment to 9 years, with a salvage value of $5,000 at the end of that time. The equipment is depreciated using the straight-line method.
  2. Instructions (a) Prepare the journal entry(ies) necessary to record the depreciation expense on the building in 2018.
  3. (b) Compute depreciation expense on the equipment for 2018.

(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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