Intermediate Accounting

Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Chapter 22 Accounting Changes and Error Analysis - all with Video Answers

Educators

Chapter Questions

Problem 1

In recent years, the Wall Street Journal has indicated that many companies have changed their accounting principles. What are the major reasons why companies change accounting methods?

Pragya Ahuja

Numerade Educator

01:15

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.

Nick Johnson

Numerade Educator

01:38

Problem 3

Discuss briefly the three approaches that have been suggested for reporting changes in accounting principles.

Prashant Bana

Numerade Educator

03:22

Problem 4

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

Thao Trinh

Numerade Educator

11:22

Problem 5

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.

Puneet Prajapati

Numerade Educator

01:34

Problem 6

Define a change in estimate and provide an illustration. When is a change in accounting estimate effected by a change in accounting principle?

Ameer Said

Numerade Educator

02:15

Problem 7

Lenexa State Bank has followed the practice of capitalizing certain marketing costs and amortizing these costs over their expected life. In the current year, the bank determined that the future benefits from these costs were doubtful. Consequently, the bank adopted the policy of expensing these costs as incurred. How should the bank report this accounting change in the comparative financial statements?

Eric Mockensturm

Numerade Educator

04:29

Problem 8

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.

Oluwadamilola Ameobi

Numerade Educator

01:27

Problem 9

Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December $31,2010,$ it was determined that salvage inventory should be valued at $\$ 52,000 .$ Of this amount, $\$ 29,000$
arose during the current year. How does this information affect the financial statements to be prepared at the end of $2010 ?$

Aditya Sood

Numerade Educator

03:28

Problem 10

Parsons Inc. wishes to change from the completed-contract to the percentage-of-completion method 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?

Puneet Prajapati

Numerade Educator

01:15

Problem 11

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

Nick Johnson

Numerade Educator

00:03

Problem 12

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

Oluwadamilola Ameobi

Numerade Educator

00:33

Problem 13

Simms Corp. controlled four domestic subsidiaries and one foreign subsidiary. Prior to the current year, Simms Corp. had excluded the foreign subsidiary from consolidation. During the current year, the foreign subsidiary was included in the financial statements. How should this
change in accounting entity be reflected in the financial statements?

Jennifer Stoner

Numerade Educator

03:37

Problem 14

Distinguish between counterbalancing and noncounterbalancing errors. Give an example of each.

Harsh Gadhiya

Numerade Educator

00:03

Problem 15

Discuss and illustrate how a correction of an error in previously issued financial statements should be handled.

Oluwadamilola Ameobi

Numerade Educator

09:33

Problem 16

Prior to 2010 , Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2010 , 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 2009 and $2010 ?$

Manasvee Singh

Numerade Educator

02:25

Problem 17

Elliott Corp. failed to record accrued salaries for 2009 $\$ 2,000 ; 2010, \$ 2,100 ;$ and $2011, \$ 3,900 .$ What is the amount of the overstatement or understatement of Retained Earnings at December $31,2012 ?$

Riham Bassal

Numerade Educator

03:16

Problem 18

In January 2010 , installation costs of $\$ 6,000$ on new machinery were charged to Repair 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 31,2011 , it is decided that the machinery has a remaining useful life of 20 years, starting with January 1 2011. What entry(ies) should be made in 2011 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2011 and depreciation expense has not yet been recorded for 2011.

Narayan Hari

Numerade Educator

04:10

Problem 19

On January $2,2010, \$ 100,000$ of $11 \%, 10$ -year bonds were issued for $\$ 97,000 .$ The $\$ 3,000$ discount was charged to Interest Expense. The bookkeeper, Mark Landis, records interest only on the interest payment dates of January 1 and July $1 .$ What is the effect on reported net income for 2010 of this error, assuming straight-line amortization of the discount? What entry is necessary to correct for this error, assuming that the books are not closed for $2010 ?$

Oluwadamilola Ameobi

Numerade Educator

05:58

Problem 20

An entry to record Purchases and related Accounts Payable of $\$ 13,000$ for merchandise purchased on December 23 $2011,$ was recorded in January $2012 .$ This merchandise was not included in inventory at December 31,2011 . What effect does this error have on reported net income for $2011 ?$ What entry should be made to correct for this error, assuming that the books are not closed for $2011 ?$

Puneet Prajapati

Numerade Educator

03:16

Problem 21

Equipment was purchased on January $2,2010,$ for $\$ 24,000$ but no portion of the cost has been charged to depreciation. The corporation wishes to use the straight-line method for these assets, which have been estimated to have a life of 10 years and no salvage value. What effect does this error have on net income in $2010 ?$ What entry is necessary to correct for this error, assuming that the books are not closed for $2010 ?$

Narayan Hari

Numerade Educator

12:40