Help with Ch. 20 HW - BriefExercise20-1 To record the...

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Help with Chapter 20 Homework Brief Exercise  20-1 To record the change: ($ in millions) Retained earnings ............................................................................................ 8.2 Inventory ($32 million – 23.8 million) ....................................... 8.2 B & B applies the average cost method retrospectively; that is, to all prior periods as if it always had used that method. In other words, all financial statement amounts for individual periods that are included for comparison with the current financial statements are revised for period-specific effects of the change. Then, the cumulative effects of the new method on periods prior to those presented are reflected in the reported balances of the assets and liabilities affected as of the beginning of the first period reported and a corresponding adjustment is made to the opening balance of retained earnings for that period. Let’s say B & B reports comparative statements of shareholders’ equity for 2014, 2015, and 2016. The $8.2 million adjustment above is due to differences prior to the 2016 change. The portion of that amount due to differences prior to 2014 is subtracted from the opening balance of retained earnings for 2014. The effect of the change on each line item affected should be disclosed for each period reported as well as any adjustment for periods prior to those reported. Also, the nature of and justification for the change should be described in the disclosure notes. Brief Exercise  20-2 To record the change: ($ in millions) Inventory ($47.6 million – 64 million) ........................................... 16.4 Retained earnings ....................................................................................... 16.4 1
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Brief Exercise  20-4 A change in depreciation method is considered a change in accounting estimate resulting from a change in accounting principle. In other words, a change in the depreciation method is similar to changing the economic useful life of a depreciable asset, and therefore the two events should be reported the same way. Accordingly, Irwin reports the change prospectively; previous financial statements are not revised. Instead, the company simply employs the straight-line method from then on. The undepreciated cost remaining at the time of the change would be depreciated straight line over the remaining useful life. ($ in millions) Asset’s cost $35.0 Accumulated depreciation to date (calculated below) (16 .2) Undepreciated cost, Jan. 1, 2016 $18.8 Estimated residual value (2 .0) To be depreciated over remaining 7 years $16.8 7 years Annual straight-line depreciation 2016–2022 $ 2.4 Calculation of SYD depreciation ( 10 + 9 + 8) x [$35 – 2] million) = $16.2 million 55* * n ( n = 1) 2 = [10 (11)] 2 = 55 Adjusting entry (2016 depreciation): ($ in millions) Depreciation expense (calculated above) .............................................. 2.4 Accumulated depreciation ............................................................. 2.4 2
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Brief Exercise  20-5 A change in depreciation method is considered a change in accounting estimate resulting from a change in accounting principle. In other words, a change in the depreciation method is similar to changing the economic useful life of a depreciable asset, and therefore the two events should be reported the same way. Accordingly, Irwin reports the change prospectively; previous financial statements are not revised.
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