LN-accounting changes & error (ch_22)

LN-accounting changes & error (ch_22) - Ch 22:...

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ACCT 401, SP 11 1. RETAINED EARNINGS STATEMENT 1 BEGINNING RETAINED EARNINGS + ADJUSTMENT FOR CUMULATIVE EFFECT ON PRIOR YEARS RETROSPECTIVE APPLICATION OF CHANGE IN ACCOUNTING PRINCIPLE (net of tax) + PRIOR PERIOD ADJUSTMENTS (net of tax) BEGINNING RETAINED EARNINGS, AS ADJUSTED + NET INCOME/LOSS (net of tax) – DIVIDENDS ENDING RETAINED EARNINGS 2. Beginning Inventory Plus: Purchases Less: Ending Inventory Cost of Goods Sold Sales Revenue Less: Cost of Goods Sold Less: Other expenses Net Income Beginning Retained Earnings Plus: Net Income Less: Dividends Ending Retained Earnings Part I: Accounting Changes 1 In an actual financial statement, you usually see the retained earnings statement embedded as part of the statement of stockholders’ equity. The statement of stockholder’s equity would include a reconciliation of all equity accounts (common stock, APIC, retained earnings, accumulated other comprehensive income, etc.) from the beginning to the end of the year.
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ACCT 401, SP 11 Accounting changes fall into 3 categories. 1. Change in ACCOUNTING PRINCIPLE : A change from one acceptable accounting principle to another. 1) Examples : adoption of a new FASB standard, change in inventory method (e.g., LIFO to FIFO) . 2) Treatment: A. Adjust its accounts . ( ACCOUNTING ) Must adjust the book balances of affected accounts. This means creating a _____________ to change those balances from their current amounts (from using the __________________ ) to what those balances would have been using the __________________________. B. Show the revision in its financial statements . ( REPORTING ) Recorded and reported ____________________ by revising prior years’ financial statements, as if the new method had been used in all prior periods, for _____________________ purpose. The adjustment for this change hits the statement of __________________ (put in the earliest period presented). In addition, in the first set of financial statements after the change, it must disclose : a. The nature of and reason for the change in accounting principle, including an explanation of why the new principle is preferable to the old. b. The effect of the change on income, EPS, net assets (or any other performance indicators/line-items), retained earnings, etc. for all periods presented.
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ACCT 401, SP 11 3) EXAMPLE 1 : The Titan Company starts operations on January 1, 2011, and initially uses the LIFO method of pricing inventory. Titan changes from the LIFO method to the FIFO method on January 1, 2013. The table below shows both the LIFO and FIFO ending inventory numbers for the current and previous two years. The company paid no dividends in 2011-2013 ($ in thousands). 2013
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LN-accounting changes & error (ch_22) - Ch 22:...

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