BE22-9 Roundtree Manufacturing Co. is preparing its year-end financial statements and is considering the accounting for the following items. 1. The vice president of sales had indicated that one product line has lost its customer appeal and will be phased out over the next 3 years.Therefore, a decision has been made to lower the estimated lives on related production equipment from the remaining 5 years to 3 years.
2. The Hightone Building was converted from a sales office to offices for the Accounting Department at the beginning of this year. Therefore, the expense related to this building will now appear as an administrative expense rather than a selling expense on the current year’s income statement.
3. Estimating the lives of new products in the Leisure Products Division has become very difficult because of the highly competitive conditions in this market. Therefore, the practice of deferring and amortizing preproduction costs has been abandoned in favor of expensing such costs as they are incurred.
Identify and explain whether each of the above items is a change in principle, a change in estimate, or an error
A change in estimate is needed when there is a change that: Affects the carrying amount of an existing asset or liability, or... View the full answer