Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 22: Q5ISTQ. (page 1328)

Which of the following is true regarding whether IFRS specifically addresses the accounting and reporting for effects of changes in accounting policies?

Direct effects Indirect effects

(a) Yes Yes

(b) No No

(c) No Yes

(d) Yes No

Short Answer

Expert verified

The correct answer is option (d)— yes for the direct effect and no for indirect effect.

Step by step solution

01

Correct Option

The correct answer is option (d)

02

Explanation

There will be a direct effect when there is a change in accounting principle but the IFRS does not explicitly address the accounting and the disclosure of the indirect effect of the change in accounting principle.

03

Explanation for false options

The IFRS only addresses the accounting and reporting for effects of changes in accounting policies in direct effects but not an indirect effect.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The following are three independent, unrelated sets of facts relating to accounting changes.

Situation 1: Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Sanford president, B. J. Jimenez, is willing to change to the accrual method of revenue recognition.

Situation 2: Hopkins Co. decides in January 2018 to change from FIFO to weighted-average pricing for its inventories.

Situation 3: Marshall Co. determined that the depreciable lives of its fixed assets are too long at present to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years.

Instructions

For each of the situations described, provide the information indicated below.

(a) Type of accounting change.

(b) Manner of reporting the change under current generally accepted accounting principles, including a discussion where applicable of how amounts are computed.

(c) Effect of the change on the balance sheet and income statement

Parsons Inc. has proposed a change from one inventory accounting method to another for financial reporting purposes. The auditor indicates that a change would be permitted only if it is to a preferable method. What difficulties develop in assessing preferability?

Peter Henning Tool Company’s December 31 year-end financial statements contained the following errors.

December 31, 2017 December 31, 2018

Ending inventory \(9,600 understated \)8,100 overstated

Depreciation expense \(2,300 understated —

An insurance premium of \)66,000 was prepaid in 2017 covering the years 2017, 2018, and 2019. The entire amount was charged to expense in 2017.

In addition, on December 31, 2018, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2019.

There were no other errors during 2017 or 2018, and no corrections have been made for any of the errors. (Ignore income tax considerations.)

Instructions

(a) Compute the total effect of the errors on 2018 net income.

(b) Compute the total effect of the errors on the amount of Henning’s working capital at December 31, 2018.

(c) Compute the total effect of the errors on the balance of Henning’s retained earnings at December 31, 2018.

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.

Discuss how a change to the LIFO method of inventory valuation is handled when it is impracticable to determine previous LIFO inventory amounts.
See all solutions

Recommended explanations on Business Studies Textbooks

Financial Performance

Read Explanation

Organizational Communication

Read Explanation

Business Operations

Read Explanation

Insurance

Read Explanation

Startups

Read Explanation

Nature of Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free