iScenarios-a. Company A increases the allowance for doubtful accounts (ADA). Using theold estimate, ADA would have been $40,000. The new estimate is $45,000.Xb. Company B omitted to record an invoice for a(n) $8,000 sale made on credit atthe end of the previous year and incorrectly recorded the sale in the currentyear. The related inventory sold has been accounted for.c. Company C changes its revenue recognition to a more conservative policy.The result is a decrease in prior-year revenue by $3,000 and a decrease incurrent-year revenue by $4,000 relative to the amounts under the old policy. Begin by evaluating each of the scenarios to determine the type of accounting change and the appropriate accounting treatment. (Refer to the letter reference foreach scenario.)Type of accounting changea. Change in estimateb. Correction of an errorc. Change in accounting policya.TreatmentProspectiveRetrospectiveRetrospectiveNext, determine the effects (if any) of the accounting change on the relevant asset or liability, equity, and comprehensive income in the year of change and the prioryear. (For any accounts unaffected, select "No eff." in the Change column and leave the amount column blank. For the Asset or Liability account, select "Incr. A" toindicate an increase in an asset, "Decr. L" for decrease in liability, and so on.)Year prior to changeAsset orChange Liability Change Equity ChangeAmountAmountIncome ChangeAmountYear of accounting changeAsset orLiability Change Equity ChangeAmountAmountIncomeAmount

Accounts receivable:- This refers to the money that a business receives from customers who have used…

a. Company A increases the allowance for doubtful accounts (ADA). Using the old estimate, ADA would have been $40,000. The new estimate is $45,000. b. Company B omitted to record an invoice for a(n) $8,000 sale made on credit at the end of the previous year and incorrectly recorded the sale in the current year. The related inventory sold has been accounted for. c. Company C changes its revenue recognition to a more conservative policy. The result is a decrease in prior-year revenue by $3,000 and a decrease in current-year revenue by $4,000 relative to the amounts under the old policy.

a. Company A increases the allowance for doubtful accounts (ADA). Using the old estimate, ADA would have been $40,000. The new estimate is $45,000. b. Company B omitted to record an invoice for a(n) $8,000 sale made on credit at the end of the previous year and incorrectly recorded the sale in the current year. The related inventory sold has been accounted for. c. Company C changes its revenue recognition to a more conservative policy. The result is a decrease in prior-year revenue by $3,000 and a decrease in current-year revenue by $4,000 relative to the amounts under the old policy.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Ee.19.
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