1st Edition

ISBN: 9780132162302

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Textbook Question

Chapter 21, Problem 1SSC

Surfing the Standards: Change in Accounting Principle

1. Read FASB ASC 250-10-S99 to respond to the following question. ASCO Recordings has decided to change its inventory system from the LIFO method to the FIFO method for the 2015 fiscal year. Because it does not carry much inventory, the change in principle does not have a material effect on the financial statements of prior periods. Accordingly, it plans not to adjust comparative financial statements presented but rather to report the cumulative effect of the change through retained earnings as of the beginning of the 2015 fiscal year. Is this approach permissible? If not, how must ASCO Recordings report this change in principle?
2. Read FASB ASC 250-10-45 to respond to the following question Basty Needleworks, a calendar-year firm, has decided to change its inventory system from the FIFO method to the LIFO method. It made this decision in July 2015, and thus plans to report under LIFO for the first time in its third quarter of 2015 filings. Based on the impracticability rules associated with retrospective application, it plans to use the prospective method of reporting for the change in principle beginning in the third quarter. Is this approach permissible? If not, how must Basty report this change in principle?

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Chapter 21, Problem 1FSAC

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The comparative balance sheets and an income statement for Raceway Corporation follow. Balance Sheets As of December 31 Year 2 Year 1 Assets Cash $ 6,300 $ 48,400 Accounts receivable 10,200 7,260 Inventory 45,200 56,000 Prepaid rent 700 2,140 Equipment 140,000 144,000 Accumulated depreciation (73,400) (118,000) Land 116,000 50,000 Total assets $ 245,000 $ 189,800 Liabilities Accounts payable (inventory) $ 37,200 $ 40,000 Salaries payable 12,200 10,600 Stockholders’ equity Common stock, $50 par value 150,000 120,000 Retained earnings 45,600 19,200 Total liabilities and stockholders’ equity $ 245,000 $ 189,800 Income Statement For the Year Ended December 31, Year 2 Sales $ 480,000 Cost of goods sold (264,000) Gross profit 216,000 Operating expenses Depreciation expense (11,400) Rent expense (7,000) Salaries expense (95,200) Other operating expenses (76,000) Net income $ 26,400 Other Information Purchased…

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Chapter 21 Solutions

Intermediate Accounting

Ch. 21 - Are accounting changes permitted in financial...Ch. 21 - How do firms report accounting changes under the...Ch. 21 - Prob. 21.3Q Ch. 21 - How do firms account for changes in accounting...Ch. 21 - Prob. 21.5Q Ch. 21 - Prob. 21.6Q Ch. 21 - Prob. 21.7Q Ch. 21 - Prob. 21.8Q Ch. 21 - Do accounting errors that self-correct within two...Ch. 21 - Does a firm need to correct an error that...

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Solution Summary: The author explains that the company should record the changes of accounting method adjustment in comparative financial statement and report the cumulative effect of change in retained earnings.

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