244585731 intermediate accounting stice stice skousen

Upload: ronnel-ronnel-ronnel

Post on 07-Jul-2018

232 views

Category:

Documents


1 download

TRANSCRIPT

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    1/30

      CHAPTER 20 

     Accounting Changesand Error Corrections

    MULTIPLE CHOICE QUESTIONS

    Theory/Definitional Qe!tion!

    1 Treatment of change in reporting entity2 Example of accounting change requiring cumulative effect adjustment3 Examples of changes in accounting estimate4 dentify changes in accounting principle! Example of changes in principle that require retroactive adjustment" Consistency concept #ehind reporting accounting changes and errors$ dentify a change in reporting entity% Example of prior period adjustment item& Example of change in accounting principle

    1' Treatment of change from unaccepted principle to accepted11 (hen to report pro forma effects on net income12 )eporting change in depreciation method13 )eporting cumulative effect on prior years* earnings14 Timing of recording change in accounting estimate

    1! )eporting change in principle and estimate as change in estimate1" +resentation of error correction on income statement, retained earnings

    statement1$ dentifying a change in reporting entity1% dentifying a change in reporting entity1& nternational standards on accounting changes and correction of errors2' nternational standards on accounting changes and correction of errors21 nternational standards on accounting changes and correction of errors

    Co"#tational Qe!tion!22 Computation of charge against income #ecause of change in principle

    23 Computation of amorti-ation expense for change in life of patent24 .etermine income overstatement amount of errors2! Cumulative effect of a change from /eighted average to 02" Computation of effect of errors on income2$ Computation of effect of errors on retained earnings, income

    22&

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    2/30

    2$0 Chapter 2'   Accounting Changes and ErrorCorrections

    2% alance of accumulated depreciation after a change in estimate2& Computation of effect of errors on income3' Entry to correct unearned revenue errors31 Computation of effect of errors on income32 .epreciation expense to #e recorded follo/ing an error 33 Entry to correct inventory errors34 Computation of cumulative effect of accounting change3! Computation of cumulative effect of accounting change3" Computation of depreciation expense after change in method3$ Entries to record change from 0 to 3% Computation of cumulative effect of change in estimated useful life3& Computation of depreciation expense /ith change in estimated life4' Computation of retroactive adjustment to retained earnings for inventory

    and depreciation expense errors

    PRO%LEMS

    1 Change in principleprepare adjustment amount and entries2 )ecord depreciation expense after change in estimate3 Change in estimaterecord #ad de#t expense and allo/ance #alance4 Change in principlerecord depreciation expense and effect of change! Change in principlerecord depreciation expense and effect of change" Change in principleprepare partial income statement, and pro forma

    disclosure

    $ 5ournali-e error corrections assuming open #oo6s for current year % Computation of corrected net income given errors& Computation of and journali-e adjustment from 0 to

    1' Computation of and disclose change from to 011 7anaging earnings through accounting changes8efficient mar6et

    hypothesis12 7otivations for managers to ma6e accounting changes

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    3/30

    MULTIPLE CHOICE QUESTIONS

    a 19 (hich of the follo/ing accounting treatments is proper for a change in04 reporting entity:a9 )estatement of all financial statements presented#9 )estatement of current period financial statementsc9 ;ote disclosure and supplementary schedulesd9 Adjustment to retained earnings and note disclosure

    # 29 An accounting change that requires that the cumulative effect of theadjustment

    03 #e presented in the income statement isa9 a change in the life of equipment from five to seven years9#9 a change in depreciation method from straightline to dou#ledeclining

    #alance9c9 a change in the specific su#sidiaries included in consolidated financial

    statements9d9 a change in the percentage used to determine the allo/ance for #ad

    de#ts9

    c 39 (hich of the follo/ing should #e reported as a change in accountingestimate:

    02 a9 Change in the reported #eginning inventory amount due to a discoveryof a #oo66eeping error 

    #9 Change from the completedcontract method to the percentageof

    completion method for revenue recognition on longterm constructioncontracts

    c9 ncrease in the rate applied to net credit sales from 1 percent to 1182percent in determining losses from uncollecti#le receiva#les

    d9 Change made to comply /ith a ne/ A

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    4/30

    2$2 Chapter 2'   Accounting Changes and ErrorCorrections

    a9 Change from the percentageofcompletion to the completedcontractmethod

    #9 Change of inventory method from 0 to c9 Change of inventory method from to 0d9 All of the a#ove require retroactive adjustment9

    # "9 (hich of the follo/ing concepts or principles relates most directly toreporting

    01 accounting changes and errors:a9 Conservatism#9 Consistencyc9 #jectivityd9 7ateriality

    a $9 (hich of the follo/ing is not  a change in reporting entity:04 a9 A company acquires a su#sidiary that is to #e accounted for as a

    purchase9#9 A #usiness com#ination is made using the poolingofinterests method9c9 A company changes the companies included in com#ined financial

    statements9d9 A company changes the su#sidiaries for /hich consolidated statements

    are presented9

    c %9 An example of an item that should #e reported as a prior period adjustmentis

    0! thea9 collection of previously /ritten off accounts receiva#le9#9 payment of taxes resulting from examination of prior years= income tax

    returns9c9 correction of an error in financial statements of a prior year9d9 receipt of insurance proceeds for damage to a #uilding sustained in a

    prior year9

    c &9 At the time isher Corporation #ecame a su#sidiary of Ash#uryCorporation,

    01 isher s/itched depreciation of its plant assets from the straightlinemethod to the sumoftheyears=digits method used #y Ash#ury9 (ithrespect to isher, this change /as aa9 change in an accounting estimate9#9 correction of an error9c9 change in accounting principle9

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    5/30

    d9 change in the reporting entity9

    c 1'9 A company changes from an accounting principle that is not  generally0! accepted to one that is generally accepted9 The effect of the change

    should #e reported, net of applica#le income taxes, in the currenta9 income statement after income from continuing operations and #efore

    extraordinary items9#9 income statement after extraordinary items9c9 retained earnings statement as an adjustment of the opening #alance9d9 retained earnings statement after net income #ut #efore dividends9

    d 119 +ro forma effects on net income and earnings per share of retroactive01 application /ould usually #e reported on the face of the income statement

    for aChange in Change in Change in)eporting Accounting Accounting

      Entity Estimate +rinciplea9 >es >es >es#9 >es ;o >esc9 ;o >es ;od9 ;o ;o >es

    d 129 (hen a company changes from the straightline method of depreciation for03 previously recorded assets to the dou#ledeclining#alance method, /hich

    of the follo/ing should #e reported:Cumulative Effect +ro orma Effects

    of Change in of )etroactive )estatement of  

     Accounting +rinciple Application +rior +eriodsa9 ;o ;o ;o#9 ;o >es >esc9 >es ;o ;od9 >es >es ;o

    c 139 The cumulative effect on prior years= earnings of a change in accounting03 principle should #e reported separately as a component of income after 

    income from continuing operations, for a change froma9 completedcontract method of accounting for longterm construction

    type contracts to the percentageofcompletion method9#9 percentageofcompletion method of accounting for longterm

    constructiontype contracts to the completedcontract method9c9 method of inventory pricing to the /eightedaverage method9d9 0 method of inventory pricing to the /eightedaverage method9

    233

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    6/30

    2$& Chapter 2'   Accounting Changes and ErrorCorrections

    a 149 (hich of the follo/ing is the proper time period in /hich to record a change02 in accounting estimate:

    a9 Current period and future periods#9 Current period and retroactivelyc9 )etroactively onlyd9 Current period only

    a 1!9 The effect of a change in accounting principle that is insepara#le from the02 effect of a change in accounting estimate should #e reported

    a9 in the period of change and future periods if the change affects #oth9#9 #y restating the financial statements of all prior periods presented9c9 #y sho/ing the pro forma effects of retroactive application9d9 as a correction of an error9

    d 1"9 The correction of an error in the financial statements of a prior periodshould

    0! #e reflected, net of applica#le income taxes, in the currenta9 income statement after income from continuing operations and #efore

    extraordinary items9#9 income statement after income from continuing operations and after 

    extraordinary items9c9 retained earnings statement after net income #ut #efore dividends9d9 retained earnings statement as an adjustment of the opening #alance9

    # 1$9 (hich of the follo/ing does not  represent a change in reporting entity:

    04 a9 A change in the cost, equity, or consolidation method of accounting for su#sidiaries and investments#9 .isposition of a su#sidiary or other #usiness unitc9 +resenting consolidated statements in place of the statements of 

    individualcompanies

    d9 Changing specific su#sidiaries that constitute the group of companiesfor /hich consolidated financial statements are presented

    d 1%9 (hich of the follo/ing is not correct regarding a change in reporting entity:04 a9 inancial statements of the year in /hich the change in reporting entityis

    made should disclose the nature of the change and the reason for thechange9

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    7/30

    #9 The effect of the change on income #efore extraordinary items, netincome, and earnings per share amounts should #e reported for allperiods presented9

    c9 inancial statements presented for all prior periods must #e restated9d9 The effect of the change on income #efore extraordinary items, net

    income, and earnings per share amounts should #e reported for allperiods presented and must #e repeated in all periods su#sequent tothe period of the change9

    c 1&9 (hich of the follo/ing is not   correct regarding the provisions of nternational

    0" Accounting

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    8/30

    2$' Chapter 2'   Accounting Changes and ErrorCorrections

    0" Accounting

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    9/30

    c9 B1!','''9d9 B2!','''9

    # 249 iden Corp9 reports on a calendaryear #asis9 ts 2''1 and 2''2 financial0! statements contained the follo/ing errors

    2''1 2''2ver?under@statement of ending inventory99999999999 B?1','''@ B 4,'''.epreciation understatement99999999999999999999999999999999 4,''' ",'''ailure to accrue salaries at year end999999999999999999 %,''' 12,'''

     As a result of the a#ove errors, 2''2 income /ould #ea9 overstated #y B4,'''9#9 overstated #y B24,'''9c9 overstated #y B22,'''9d9 overstated #y B1",'''9

    c 2!9 n .ecem#er 31, 2''2, uc6eye Corporation appropriately changed its03 inventory valuation method to cost from 0 cost for #oth financial

    statement and income tax purposes9 The change /ill result in a B14','''increase in the #eginning inventory at 5anuary 1, 2''29 Assume a 3'percent income tax rate9 The cumulative effect of this accounting change

    uc6eye should report for the year ended .ecem#er 31, 2''2, isa9 B'9#9 B42,'''9c9 B&%,'''9d9 B14','''9

    d 2"9 )odney Company=s .ecem#er 31 yearend financial statements containedthe

    0! follo/ing errors  .ecem#er 31, 2''1 .ecem#er 31,

    2''2Ending inventory9999999999999 B4,''' understated B3,"'' overstated.epreciation expense99999 %'' understated

     An insurance premium of B3,"'' /as prepaid in 2''1 covering the years2''1, 2''2, and 2''39 The entire amount /as charged to expense in

    23$

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    10/30

    2$( Chapter 2'   Accounting Changes and ErrorCorrections

    2''19 n addition, on .ecem#er 31, 2''2, fully depreciated machinery /assold for B",4'' cash, #ut the sale /as not recorded until 2''39 There /ereno other errors during 2''1 or 2''2, and no corrections have #een madefor any of the errors9 gnore income tax considerations9 (hat is the totaleffect of the errors on 2''2 net income:a9 ;et income is understated #y B12,%''9#9 ;et income is overstated #y B3,"''9c9 ;et income is understated #y B1,"''9d9 ;et income is overstated #y B2,4''9

    c 2$9 Dentuc6y Enterprises purchased a machine on 5anuary 2, 2''1, at a costof

    0! B12','''9 An additional B!',''' /as spent for installation, #ut this amount/as charged erroneously to repairs expense9 The machine has a useful life

    of five years and a salvage value of B2','''9 As a result of the error,a9 retained earnings at .ecem#er 31, 2''2, /as understated #y B3','''

    and 2''2 income /as overstated #y B",'''9#9 retained earnings at .ecem#er 31, 2''2, /as understated #y B3%,'''

    and 2''2 income /as overstated #y B",'''9c9 retained earnings at .ecem#er 31, 2''2, /as understated #y B3','''

    and 2''2 income /as overstated #y B1','''9d9 2''1 income /as understated #y B!','''9

    a 2%9 (olverine Corporation purchased a machine for B132,''' on 5anuary 1,1&&&,02 and depreciated it #y the straightline method using an estimated useful life

    of eight years /ith no salvage value9 n 5anuary 1, 2''2, (olverinedetermined that the machine had a useful life of six years from the date of acquisition and /ill have a salvage value of B12,'''9 A change in estimate/as made in 2''2 to reflect these additional data9 (hat amount should(olverine record as the #alance of the accumulated depreciation accountfor this machine at .ecem#er 31, 2''2:a9 B$3,'''#9 B$$,'''c9 B32','''d9 B3!2,'''

    d 2&9 ar6er, nc9 receives su#scription payments for annual ?one year@

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    11/30

    0! su#scriptions to its maga-ine9 +ayments are recorded as revenue /henreceived9 Amounts received #ut unearned at the end of each of the lastthree years are sho/n #elo/

      2''' 2''1 2''2

    nearned revenues999999999999999999999999999 B12',''' B1!',''' B1$",'''

    ar6er failed to record the unearned revenues in each of the three years9 As a result of the omission, 2''2 income /asa9 overstated #y B14",'''9#9 understated #y B14",'''9c9 understated #y B2",'''9d9 overstated #y B2",'''9

    23&

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    12/30

    2&0 Chapter 2'   Accounting Changes and ErrorCorrections

    a 3'9 ar6er, nc9 receives su#scription payments for annual ?one year@0! su#scriptions to its maga-ine9 +ayments are recorded as revenue /hen

    received9 Amounts received #ut unearned at the end of each of the lastthree

    years are sho/n #elo/9  2''' 2''1 2''2nearned revenuesFFFFFFF B12',''' B1!',''' B1$",'''

    ar6er failed to record the unearned revenues in each of the three years9The entry needed to correct the a#ove errors is

    a9 )etained Earnings999999999999999999999999999999999999999999999999 1!','''

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    13/30

    a9 B'#9 B3','''c9 B3$,!''d9 B"','''

    d 339 Doppell Co9 made the follo/ing errors in counting its yearend physical0! inventories

    2'''9999999999999999999999999999999999999999999 B "',''' overstatement2''19999999999999999999999999999999999999999999 1'%,''' understatement2''29999999999999999999999999999999999999999999 &',''' overstatement

    The entry to correct the accounts at the end of 2''2 isa9 )etained Earnings9999999999999999999999999999999999999999999 4%,'''

    Cost of Goods

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    14/30

    2&2 Chapter 2'   Accounting Changes and ErrorCorrections

    #9 B12','''9c9 B13','''9d9 B2%','''9

    c 3"9 n 5anuary 1, 1&&&, Grayson Company purchased for B24',''' a machine03 /ith a useful life of ten years and no salvage value9 The machine /as

    depreciated #y the dou#ledeclining#alance method, and the carryingamount of the machine /as B1!3,"'' on .ecem#er 31, 2'''9 Graysonchanged retroactively to the straightline method on 5anuary 1, 2''19Grayson can justify the change9 (hat should #e the depreciation expenseon this machine for the year ended .ecem#er 31, 2''2:a9 B1!,3"'#9 B1&,2''

    c9 B24,'''d9 B3',$2'

    d 3$9 n 5anuary 1, 2''2, Apollo nc9 changed its inventory cost flo/ method to03 from 0 for #oth financial statement and income tax reporting

    purposes9 The change resulted in a B4'',''' increase in the #eginninginventory at 5anuary 1, 2''29 gnoring income taxes, the accountingchange should #e reported #y Apollo in its 2''2a9 income statement as a B4'',''' de#it9#9 retained earnings statement as a B4'',''' de#it adjustment to the

    #eginning #alance9

    c9 income statement as a B4'',''' credit9d9 retained earnings statement as a credit adjustment to the #eginning#alance9

    a 3%9 Tyson Company #ought a machine on 5anuary 1, 2''', for B24,''', at/hich

    02 time it had an estimated useful life of eight years, /ith no residual value9

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    15/30

    c9 B2,'''d9 B2,%''

    # 3&9 n 5anuary 1, 1&&&, Carnival

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    16/30

    2&& Chapter 2'   Accounting Changes and ErrorCorrections

    ?1@ gnoring income taxes, /hat is the amount of adjustment required, and /here/ould it #e reported in the financial statements:

    ?2@ +repare the journal entry ?excluding income taxes@ required to adjust theaccounts9

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    17/30

    Solution 1

    0!?1@ The change is from an unaccepta#le principle to GAA+, /hich is an error 

    correction, not a change in accounting principle9 The change must #e reportedas a prior period adjustment to )etained Earnings at 5anuary 1, 2''29

    ?2@ )etained Earnings999999999999999999999999999999999999999999999999999999 22,''' Allo/ance for .ou#tful Accounts999999999999999999999999 22,'''

    Problem 2 

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    18/30

    Problem 3 

    +erfect Technologies has estimated #ad de#ts using the percentageofsalesmethod since their #usiness #egan operations in 1&&&9 nformation relating to #adde#ts and sales is as follo/s

    Estimated ad.e#t Expense Actual

    >ear

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    19/30

    .ate Asset oo6 Kalue +ercentage alance .epreciation128318&& B"'',''' 2!L B1!','''128318'' 4!',''' 2!L 112,!''128318'1 33$,!'' 2!L %4,3$!

    B34",%$!

    .epreciation Expense999999999999999999999999999999999999999999999999999999 %4,3$! Accumulated .epreciation999999999999999999999999999999999999999 %4,3$!

    ?2@ .ou#le.eclining

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    20/30

    128318'' 14,''' 21,$$% $,$$%128318'1 14,''' 1%,""$ 4,"""

    B42,''' B"!,334 B23,334

     Accumulated .epreciation99999999999999999999999999999999999999999999999 23,334Cumulative Effect of Change in Accounting +rinciple 23,334

    ?2@ ?B124,''' B12,''' B42,'''@ 8 ! years J B14,'''9

    .epreciation Expense999999999999999999999999999999999999999999999999999999 14,''' Accumulated .epreciation999999999999999999999999999999999999999 14,'''

    Problem 6 

    Cameron Co9 #egan operations on 5anuary 1, 1&&&, at /hich time it acquireddeprecia#le assets of B1'','''9 The assets have an estimated useful life of tenyears and no salvage value9

    n 2''2, Cameron Co9 changed from the sumoftheyears=digits depreciationmethod to the straightline depreciation method9 n 2''2, Cameron Co9 hadincome from continuing operations of B"$','''9

    ;et income from prior years /as as follo/s2''199999999999999999999999999999999999999999999999999999999999999999999 B3'','''2'''99999999999999999999999999999999999999999999999999999999999999999999 4!','''1&&&99999999999999999999999999999999999999999999999999999999999999999999 3!','''

    ?1@ gnoring income tax considerations, prepare a partial income statement for 

    Cameron Co9 to reflect the preceding information at .ecem#er 31, 2''2 ?roundto the nearest dollar@9

    ?2@

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    21/30

    Solution 6 

    03?1@ ears=.igits ear .epreciation .epreciation .epreciation1&&& 1'8!! x B1'',''' J B1%,1%2 B1'','''81' J B1',''' B %,1%22''' &8!! x B1'',''' J B1",3"4 B1'','''81' J B1',''' ",3"42''1 %8!! x B1'',''' J B14,!4! B1'','''81' J B1',''' 4,!4!

    B1&,'&1Cameron Co9

    +artial ncome ear Ended .ecem#er 31, 2''2

    ncome from continuing operations99999999999999999999999999999999999999999999999999999999999999 B"$','''Cumulative effect on prior years of change from sumofthe

      years=digits to straightline depreciation99999999999999999999999999999999999999999999999999999 1&,'&1;et income9999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999 B"%&,'&1

    ?2@ +ro forma income disclosure  2''1 2''' 1&&&;et income as previously recorded B3'',''' B4!',''' B3!','''Effect of change in principle 4,!4! ",3"4 %,1%2

    B3'4,!4! B4!",3"4 B3!%,1%2

    ;ote +ro forma earnings per share /ould also #e required although theycannot #e computed from the data given9

    Problem 7 

    n revie/ing the #oo6s of 7eyers )etailers nc9, the auditor discovered certainerrors that had occurred during 2''1 and 2''29 ;o errors /ere corrected during2''19 The errors are summari-ed #elo/

    ?a@ eginning merchandise inventory ?5anuary 1, 2''1@ /as understated #yB%,"4'9

    ?#@ 7erchandise costing B2,4'' /as sold for B4,''' to 959 Taylor on.ecem#er 2&, 1&&&, #ut the sale /as recorded in 2''29 Themerchandise /as shipped 999 shipping point and /as not includedin ending inventory9 7eyers uses a periodic inventory system9

    ?c@ A t/oyear fire insurance policy /as purchased on 7ay 1, 2''1, for B!,$"'9 The entire amount /as de#ited to +repaid nsurance9 ;oadjusting entry /as made in 2''1 or 2''29

    ?d@ A oneyear note receiva#le of B&,"'' /as held #y 7eyers #eginningcto#er 1, 2''19 +ayment of the 1' percent note and accrued interest/as received upon maturity9 ;o adjusting entry /as made on .ecem#er 31, 2''19

    ?e@ Equipment /ith a tenyear life /as purchased on 5anuary 1, 2''1, for B3&,2''9 ;o depreciation expense /as recorded during 2''1 or 2''29

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    22/30

     Assume that the equipment has no salvage value and that 7eyers usesthe straightline method for recording depreciation9

    +repare journal entries to correct each of these independent situations9 Assumethat the nominal accounts for 2''2 have not yet #een closed into the incomesummary account9

    Solution 7 

    0!?a@ ;o journal entry is required9 The 2''1 #eginning inventory

    understatement is offset #y the 2''' ending inventory understatement9The error is counter#alanced9

    ?#@

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    23/30

    Problem 8 

    ear ;et ncome ?0oss@2'''99999999999999999999999999999999999999999999999999999B4','''2''1FFFFFFFFFFFFFFFFFF99 ?1!,'''@2''2FFFFFFFFFFFFFFFFFF99 3!,'''

    Compute the corrected net income for the years 2''', 2''1, and 2''29 ?gnoreincome taxes9@

    Solution 8 

    0!0angley nc9

    Corrected ;et ncome2''', 2''1, 2''2?Adjusted for Accruals and +repayments@

      2''' 2''1 2''2)eported net income9999999999999999999999999999999999999999999999 B4',''' B?1!,'''@ B3!,'''

     Accruals and prepayments not properly recogni-ed Accrued expenses9999999999999999999999999999999999999999999 ?2,&''@ 2,&''  ?3,'''@ 3,'''

    ?3,4''@+repaid expenses99999999999999999999999999999999999999999999 2,''' ?2,'''@

      2,%'' ?2,%''@  1,!''

     Accrued revenue9999999999999999999999999999999999999999999999 2,$!' ?2,$!'@  2,!'' ?2,!''@  2,$''

    nearned revenue9999999999999999999999999999999999999999999 ?4,2!'@ 4,2!'  ?4,!''@ 4,!''

     ?4,1''@

    Corrected net income ?loss@FF9FFFFFFF9 B3$,"'' B?14,%''@ B33,&''

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    24/30

    Problem 9

    n 5anuary 1, 2''2, am/ell Corporation changed its inventory cost flo/assumption from 0 to 9 am/ell=s inventory values at the end of each year since inception under #oth methods are summari-ed #elo/9

      01&&%9999999999999999999999999999999999999999999999999999B2'',''' B1%','''1&&&9999999999999999999999999999999999999999999999999999992!',''' 22",'''2'''99999999999999999999999999999999999999999999999999999931',''' 2%3,'''2''19999999999999999999999999999999999999999999999999999994'',''' 3"','''

    gnore income tax considerations9

    ?1@ (hat is the amount of adjustment required in the 2''2 accounts, and /here/ould it #e reported in the financial statements:

    ?2@ +repare the journal entry required to adjust the accounts9

    Solution 903?1@ The inventory should #e adjusted to the #asis at the #eginning of 2''2,

    /hich /ould necessitate a B4',''' increase to the inventory at 5anuary 1,2''29 The change is an exception to the general rule and should #e reportedas an adjustment to retained earnings at 5anuary 1, 2''29

    ?2@ nventory99999999999999999999999999999999999999999999999999999999999999999999999999 4',''')etained Earnings999999999999999999999999999999999999999999999999999 4','''

    Problem 10 

    n 5anuary 1, 2''2, (iley Corporation changed its inventory cost flo/ assumptionfrom to 09 The change /as made for financial statement and taxreporting9 (iley=s inventory values at the end of each year since inception under #oth methods are summari-ed #elo/9

      01&&%9999999999999999999999999999999999999999999999999999B4'',''' B3"','''1&&&999999999999999999999999999999999999999999999999999999!'',''' 4!2,'''2'''999999999999999999999999999999999999999999999999999999"2',''' !"",'''2''1999999999999999999999999999999999999999999999999999999%'',''' $2','''

    gnoring income taxes, /hat is the amount of adjustment required in the 2''2accounts, and /here /ould it #e reported in the financial statement:

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    25/30

    Solution 10 

    03The change is an exception to the general rule and should #e reported #y notedisclosure only9 .etermination of inventory under 0 is usually impractical, sothe carrying value of the inventory at the date of change #ecomes the #eginninginventory value under 09

      Problem 11  7anagers often are accused of ma6ing accounting changes in order to avoidregulation, to achieve compliance /ith de#t covenants, to increase compensationthrough earnings#ased #onus plans, or to smooth earnings9 7anagers may indeed#elieve that #y increasing earnings, and thus increasing earnings per share, stoc6prices /ill increase9  Explain the relationship #et/een attempts #y managers to manipulate earningsthrough accounting changes and the efficient mar6et hypothesis9

    Solution 1101

      7ar6et efficiency requires that security prices instantaneously and fully reflect allpu#licly availa#le information9

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    26/30

    the economic realties facing a firm, ho/ever9

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    27/30

    CHAPTER 20 )) QUI* A;ame QQQQQQQQQQQQQQQQQQQQQQQQQ 

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    28/30

    CHAPTER 20 )) QUI* %;ame QQQQQQQQQQQQQQQQQQQQQQQQQ 

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    29/30

    CHAPTER 20 )) QUI* C;ame QQQQQQQQQQQQQQQQQQQQQQQQQ 

  • 8/18/2019 244585731 Intermediate Accounting Stice Stice Skousen

    30/30

    Sui- A

    19 29 39 T49 !9 T"9 $9 T%9 &9 T

      1'9 T

    Sui-

    19 T29 39 49 T!9 "9 T$9 T%9 &9 T

      1'9 T

    Sui- C

    19 .29 A39 49 E!9 C"9 .$9 E%9 C&9 A

    1'9 C119 129 A

    2!%