Chapter 4 The Income Statement and Statement of Cash Flows28

Chapter 4 The Income Statement and Statement of Cash Flows28

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Chapter 04 - The Income Statement and Statement of Cash Flows Exercise 4-9 Requirement 1 In general, we report voluntary changes in accounting principles retrospectively. However, 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 reflects a change in the (a) estimated future benefits from the asset, (b) the pattern of receiving those benefits, or (c) the company’s knowledge about those benefits, and therefore the two events should be reported the same way. Accordingly, Canliss reports the change prospectively; previous financial statements are not revised. Instead, the company simply employs the straight-line method from
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Unformatted text preview: now on. The undepreciated cost remaining at the time of the change would be depreciated using the straight-line method over the remaining useful life. A disclosure note should justify that the change is preferable and should describe the effect of the change on any financial statement line items and per share amounts affected for all periods reported. Requirement 2 Assets cost $800,000 Accumulated depreciation to date ($320,000 + 192,000) (512,000 ) To be depreciated over remaining 3 years $288,000 2011 straight-line depreciation: $288,000 3 years = $96,000 Adjusting entry: Depreciation expense (calculated above). ..................... 96,000 Accumulated depreciation ....................................... 96,000 4-1...
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