Not handled retrospectively not considered errors

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and the future periods if the change affects both.Not handled retrospectively.Not considered errors.Examplesinclude:Useful lives and salvage values of depreciable assets.Allowance for uncollectible receivables.Change in Accounting EstimatesAccounting ChangesAccounting ChangesLO 6 Understand the reporting of accounting changes and errors.
4-39Change 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 (at the beginning of 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 Change in Accounting Estimate LO 6 Understand the reporting of accounting changes and errors.
4-40Equipment$510,000Fixed Assets:Accumulated depreciation350,000Net book value (NBV)$160,000Balance Sheet(Dec. 31, 2013)After 7 yearsEquipment cost $510,000Salvage value- 10,000Depreciable base500,000Useful life (original)10 yearsAnnual depreciation$ 50,000x 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 Change in Accounting Estimate LO 6 Understand the reporting of accounting changes and errors.
4-41Net book value $160,000Salvage value (new) 5,000Depreciable base155,000Useful life remaining8 yearsAnnual depreciation$ 19,375Depreciation Expense calculation for 2014.Depreciation Expense calculation for 2014.Depreciation Expense 19,375Accumulated Depreciation 19,375Journal entry for 2014After 7 yearsChange in Accounting Estimate Change in Accounting Estimate LO 6 Understand the reporting of accounting changes and errors.
4-42SummaryAccounting Changes and ErrorsAccounting Changes and ErrorsIllustration 4-22LO 6 Understand the reporting of accounting changes and errors.
4-431Understand the uses and limitations of an income statement.2Describe the content of the income statement.3Prepare an income statement. 4Explain how to report various income items.LEARNING OBJECTIVESLEARNING OBJECTIVES5Understand the reporting of accounting changes and errors.6Prepare a retained earnings statement.7Explain how to report other comprehensive income.After studying this chapter, you should be able to:Income Statement and Related Information4LO 6
4-44LO 7 Prepare a retained earnings statement.IncreaseNet incomeChange in accounting principlePrior period adjustmentsDecreaseNet lossDividendsChange in accounting principlesPrior period adjustmentsRetained Earnings StatementOther Reporting IssuesOther Reporting Issues
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