Other Reporting Issues Accounting Changes and Errors LO 6 Understand the

Other reporting issues accounting changes and errors

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Other Reporting Issues Accounting Changes and Errors LO 6 Understand the reporting of accounting changes and errors. Changes in Accounting Principle
4-41 Change in Accounting Principle: Gaubert Inc. decided in March 2014 to change from FIFO to weighted-average inventory pricing. Gaubert’s income before taxes, using the new weighted-average method in 2014, is $30,000. Illustration 4-20 Calculation of a Change in Accounting Principle Illustration 4-21 Income Statement Presentation of a Change in Accounting Principle (Based on 30% tax rate) Pretax Income Data Accounting Changes Advance slide in presentation mode to reveal answers. LO 6
4-42 Accounted for in the period of change or the period of and the future periods if the change affects both. Not handled retrospectively. Not considered errors. Examples include: Useful lives and salvage values of depreciable assets. Allowance for uncollectible receivables. Inventory obsolescence. Change in Accounting Estimates Accounting Changes LO 6 Understand the reporting of accounting changes and errors.
4-43 Change in Estimate:Arcadia HS, purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been recorded for 7 years on a straight-line basis. In 2014 (year 8), it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.Questions:What is the journal entry to correct the prior years’ depreciation?Calculate the depreciation expense for 2014.Change in Accounting Estimate LO 6 Understand the reporting of accounting changes and errors.
4-44 Equipment $510,000 Fixed Assets: Accumulated depreciation 350,000 Net book value (NBV) $160,000 Balance Sheet (Dec. 31, 2013) After 7 years Equipment cost $510,000 Salvage value - 10,000 Depreciable base 500,000 Useful life (original) 10 years Annual depreciation $ 50,000 x 7 years = $350,000 First, establish NBV at date of change in estimate. First, establish NBV at date of change in estimate. Change in Accounting Estimate LO 6 Understand the reporting of accounting changes and errors.
4-45 Net book value $160,000 Salvage value (new) 5,000 Depreciable base 155,000 Useful life remaining 8 years Annual depreciation $ 19,375 Depreciation Expense calculation for 2014. Depreciation Expense calculation for 2014. Depreciation Expense 19,375 Accumulated Depreciation 19,375 Journal entry for 2014 After 7 years Change in Accounting Estimate LO 6 Understand the reporting of accounting changes and errors.
4-46 Result from: mathematical mistakes. mistakes in application of accounting principles. oversight or misuse of facts. Corrections treated as prior period adjustments. Adjustment to the beginning balance of retained earnings. Corrections of Errors Accounting Errors LO 6 Understand the reporting of accounting changes and errors.
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