Marlblestone encountered the following situations during the preparation of its annual financial statements. Identify whether each situation should be considered a "change in estimate," a "change in policy," or "correction of an error." Identify also whether the change should be made retrospectively or prospectively. (a) The company discovered that a new addition to the warehouse had been expensed in a prior period instead of being capitalized and amortized. (b) (c) (d) (e) The company realized that it was using its delivery van much more heavily in its first two years than it would use later, when it would be adding a second delivery van. As a result, the depreciation method was changed from straight-line to double declining balance. When the estimated useful life of the company's equipment was reduced from ten years to five years, the estimated residual value for the equipment was changed from $5,000 to $20,000. The company discovered that it was recording some vendor purchases for services when they were paid instead of when the goods were received. Payments were typically made 60 days after the receipt of the goods. Although each of the individual purchases was small, the total was significant due to the large volume of purchases involved. After the books had been closed for the year, it was discovered that no accruals had been made for these purchases. The company uses ASPE and decided to switch from using the income tax payable method to using the future income tax method. Type of Change < < Change (or correction) to be Made <
Marlblestone encountered the following situations during the preparation of its annual financial statements. Identify whether each situation should be considered a "change in estimate," a "change in policy," or "correction of an error." Identify also whether the change should be made retrospectively or prospectively. (a) The company discovered that a new addition to the warehouse had been expensed in a prior period instead of being capitalized and amortized. (b) (c) (d) (e) The company realized that it was using its delivery van much more heavily in its first two years than it would use later, when it would be adding a second delivery van. As a result, the depreciation method was changed from straight-line to double declining balance. When the estimated useful life of the company's equipment was reduced from ten years to five years, the estimated residual value for the equipment was changed from $5,000 to $20,000. The company discovered that it was recording some vendor purchases for services when they were paid instead of when the goods were received. Payments were typically made 60 days after the receipt of the goods. Although each of the individual purchases was small, the total was significant due to the large volume of purchases involved. After the books had been closed for the year, it was discovered that no accruals had been made for these purchases. The company uses ASPE and decided to switch from using the income tax payable method to using the future income tax method. Type of Change < < Change (or correction) to be Made <
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Marlblestone encountered the following situations during the preparation of its annual financial statements. Identify whether each
situation should be considered a "change in estimate," a "change in policy," or "correction of an error." Identify also whether the change
should be made retrospectively or prospectively.
(a)
(b)
(c)
(d)
(e)
The company discovered that a new addition to the
warehouse had been expensed in a prior period instead of
being capitalized and amortized.
The company realized that it was using its delivery van much
more heavily in its first two years than it would use later,
when it would be adding a second delivery van. As a result,
the depreciation method was changed from straight-line to
double declining balance.
When the estimated useful life of the company's equipment
was reduced from ten years to five years, the estimated
residual value for the equipment was changed from $5,000
to $20,000.
The company discovered that it was recording some vendor
purchases for services when they were paid instead of when
the goods were received. Payments were typically made 60
days after the receipt of the goods. Although each of the
individual purchases was small, the total was significant due
to the large volume of purchases involved. After the books
had been closed for the year, it was discovered that no
accruals had been made for these purchases.
The company uses ASPE and decided to switch from using
the income tax payable method to using the future income
tax method.
Type of Change
Change (or
correction)
to be Made
!!
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