(Change in Principle, Estimate) As a certified public accountant, you have been contacted by Joe Davison, CEO of Sports-Pro Athletics, Inc., a manufacturer of a variety of athletic equipment. He has asked you how to account for the following changes.1. Sports-Pro appropriately changed its depreciation method for its machinery from the double-declining-balance method to the units-of-production method effective January 1, 2017.2. Effective January 1, 2017, Sports-Pro appropriately changed the salvage values used in computing depreciation for its office equipment.3. On December 31, 2017, Sports-Pro appropriately changed the specific subsidiaries constituting the group of companies for which consolidated financial statements are presented.InstructionsWrite a 1–1.5 page letter to Joe Davison explaining how each of the above changes should be presented in the December 31, 2017, financial statements.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
(Change in Principle, Estimate) As a certified public accountant, you have been contacted by Joe Davison, CEO of Sports-Pro Athletics, Inc., a manufacturer of a variety of athletic equipment. He has asked you how to account for the following changes.
1. Sports-Pro appropriately changed its
2. Effective January 1, 2017, Sports-Pro appropriately changed the salvage values used in computing depreciation for its office equipment.
3. On December 31, 2017, Sports-Pro appropriately changed the specific subsidiaries constituting the group of companies for which consolidated financial statements are presented.
Instructions
Write a 1–1.5 page letter to Joe Davison explaining how each of the above changes should be presented in the December 31, 2017, financial statements.
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