c Prior Period Errors Errors in prior period financial statements as a result

C prior period errors errors in prior period

• Notes
• 11
• 86% (7) 6 out of 7 people found this document helpful

This preview shows page 5 - 7 out of 11 pages.

c) Prior Period Errors: Errors in prior period financial statements as a result of omissions and other misstatements including mathematical errors and misapplication of accounting policies. Also retrospectively adjust the beginning balance of retained earnings and the affected asset or liability (Retrospective Restatement) Problems 1. During 2016, King Company decided to change from the FIFO method of inventory valuation to the weighted average method. Inventory balances under each method were: FIFO Average December 31, 2014 9,000,000 8,500,000 December 31, 2015 8,000,000 8,600,000 December 31, 2016 7,000,000 7,900,000 Ignoring income tax, in its 2016 statement of changes in shareholders’ equity, what amount should King report as an adjustment to retained earnings as a result of this accounting change? a. 100,000 increase b. 100,000 decrease c. 600,000 increase d. 600,000 decrease 2. On January 1, 2013, Lyle Company purchased for P5,000,000 a machine with a useful life of ten years with no residual. The machine was depreciated by the straight-line method of depreciation. On January 1, 2016 the en-tity determined that the residual value of this equipment at the end of its useful life is P500,000 and the total life of the asset from acquisition was 15 years. What amount should be reported as depreciation for 2016? 3. On January 1, 2014, Wesley Company purchased for P6,000,000 a machine with a useful life of 5 years and a residual value of P600,000. The machine was depreciated by the double declining balancemethod and the accumulated depreciation of the machine was P3,840,000 on December 31, 2015. Wesley changed to the straight-line method on January 1, 2016 and the residual value did not change. In its 2016 statement of finan-cial position, what amount should Wesley report as accumulated depreciation for this machine?
PAGE 64. While preparing its financial statements for 2016, June Company discovered computational errors in its 2015 and 2014 depreciation expense. These errors resulted in overstatement of each year’s income by P25,000, net of income taxes. The following amounts were reported in the previously issued financial statements: 2015 2014 Retained earnings, January 1 700,000 500,000 Net income 150,000 200,000 Retained earnings, December 31 850,000 700,000 June’s net income for the year 2016 is correctly reported at P500,000 and dividends of P100,000 were de-clared. What is the balance of retained earnings on December 31, 2016?