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Chapter 22: Question 12 (page 1306)

How should consolidated financial statements be reported this year when statements of individual companies were presented last year?

Short Answer

Expert verified

The consolidated financial statement is for the firms which own various subsidiaries and divisions. The consolidated statements should report the new entity, describe the nature and reason for the change, and the effect of change in net income, EPS should be disclosed.

Step by step solution

01

Definition of consolidated financial statement

It is defined as the financial statements of a business organization that has multiple divisions or various subsidiaries

02

Reporting to the consolidated financial statements

  1. The financial statement of previous years should be restated to show the financial information related to the new reporting entity.
  2. The financial statement of the year in which the change is made should describe the nature of the change and its reason.
  3. The effect of the change on the income, net income, and EPS should also be disclosed,

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Most popular questions from this chapter

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?

(Change in Principle—Long-Term Contracts) Cullen Construction Company, which began operations in 2017, changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2018. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. The appropriate information related to this change is as follows.

Pretax Income Percentage-of-Completion Completed-Contract Difference 2017 \(880,000 \)590,000 $290,000 2018 900,000 480,000 420,000

Instructions (a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2018? (b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

Identify and describe the approach the FASB requires for reporting changes in accounting principles.

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 accounting. It has been a few years since he took intermediate accounting, and he cannot remember whether this change would be treated in a retrospective or prospective manner. Your supervisor wants you to research the authoritative guidance on a change in accounting policy related to depreciation methods.

Instructions

(a) What are the accounting and reporting guidelines for a change in accounting policy related to depreciation methods?

(b) What are the conditions that justify a change in depreciation method, as contemplated by Cullen Co.?

In January 2017, installation costs of \(6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of \)30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At December 31, 2018, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2018. What entry(ies) should be made in 2018 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2018 and depreciation expense has not yet been recorded for 2018.
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