ACC306WEEK5ASSGN - E 2018 Classifying accounting changes -...

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E 20–18 Classifying accounting changes - ACC306 Intermediate Accounting II -AU E 20–18 Classifying accounting changes LO1 through LO5 Indicate with the appropriate letter the nature of each situation described below: PR Change in principle reported retrospectively PP Change in principle reported prospectively E Change in estimate EP Change in estimate resulting from a change in principle R Change in reporting entity N Not an accounting change EP 1.Change from declining balance depreciation to straight-line. E 2.Change in the estimated useful life of office equipment. E 3.Technological advance that renders worthless a patent with an unamortized cost of $45,000. PR 4.Change from determining lower of cost or market for inventories by the individual item approach to the aggregate approach. PR 5.Change from LIFO inventory costing to weighted-average inventory costing. E 6.Settling a lawsuit for less than the amount accrued previously as a loss contingency. R 7.Including in the consolidated financial statements a subsidiary acquired several years earlier that was appropriately not included in previous years. N 8.Change by a retail store from reporting bad debt expense on a pay-as-you-go basis to the allowance method. PR 9.A shift of certain manufacturing overhead costs to inventory that previously were expensed as incurred to more accurately measure cost of goods sold. (Either method is generally acceptable.) E 10.Pension plan assets for a defined benefit pension plan achieving a rate of return in excess of the amount anticipated. Analysis Case 20–10 - DRS Corporation - ACC306 Intermediate Accounting II -AU Analysis Case 20–10 - DRS Corporation - Various changes LO1 through LO4 DRS Corporation changed the way it depreciates its computers from the sum-of-the-year’s-digits method to the straight-line method beginning January 1, 2011. DRS also changed its estimated residual value used in computing depreciation for its office building. At the end of 2011, DRS changed the specific subsidiaries constituting the group of companies for which its consolidated financial statements are prepared.
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Required: 1. For each accounting change DRS undertook, indicate the type of change and how DRS should report the change. Be specific. The change in depreciation method for computers represents represent a change in estimate resulting from a change in accounting principle. Expense allowance made for wear and tear on an Asset over its estimated useful life. The change in residual value for the office building is a change in accounting estimate. The depreciable amount is determined after deducting its residual value (only where there is an active market for the asset). Useful life and residual value are reviewed at least annually and reflect the pattern in which the benefits associated with the asset are consumed. The company reports the change prospectively; previous financial statements are not recast. A change in the useful life or depreciation method is accounted for
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ACC306WEEK5ASSGN - E 2018 Classifying accounting changes -...

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