Avery Corporation made the following determinations about threedepreciable assets:
? Depreciable asset M was purchased on January 1, 2015. Theoriginal cost was $114,000 and this amount was entirely expensed in2015. This particular asset has an 8-year useful life and nosalvage value. The straight-line method should have been used fordepreciation purposes.
? Depreciable asset N was purchased January 1, 2016. Itoriginally cost $540,000 and, for depreciation purposes, thesum-of-the-yearsâ digit method was originally chosen. The asset wasoriginally expected to be useful for 10 years and have a zerosalvage value. In 2017, the decision was made to change thedepreciation method from sum-of-the-yearsâ digits to straight-lineto better match costs.
Note: The estimates relating to useful life and salvage valueremained unchanged.
? Depreciable asset O was purchased January 1, 2013. Itoriginally cost $160,000 and, for depreciation purposes, thestraight-line method was chosen. The asset was originally expectedto be useful for 8 years and have a zero salvage value. In 2017,the decision was made to extend the total life of this asset to 10years and to estimate the salvage value at $5,000.
a) Indicate if the situation is a change in accountingprinciple, a change in accounting estimate or an error in thefinancial statement. What is the proper accounting treatment(retrospective, restatement,prospective) for each of theseassets?
You must support your conclusions with cites to the applicableguidance listed in the FASB Codification. Ignore tax implicationsand assume all errors are material to the client and requireadjustment.
b) What journal entries would be appropriate at12/31/2017 for each of these assets? Ignore taximplications.
Avery Corporation made the following determinations about threedepreciable assets:
? Depreciable asset M was purchased on January 1, 2015. Theoriginal cost was $114,000 and this amount was entirely expensed in2015. This particular asset has an 8-year useful life and nosalvage value. The straight-line method should have been used fordepreciation purposes.
? Depreciable asset N was purchased January 1, 2016. Itoriginally cost $540,000 and, for depreciation purposes, thesum-of-the-yearsâ digit method was originally chosen. The asset wasoriginally expected to be useful for 10 years and have a zerosalvage value. In 2017, the decision was made to change thedepreciation method from sum-of-the-yearsâ digits to straight-lineto better match costs.
Note: The estimates relating to useful life and salvage valueremained unchanged.
? Depreciable asset O was purchased January 1, 2013. Itoriginally cost $160,000 and, for depreciation purposes, thestraight-line method was chosen. The asset was originally expectedto be useful for 8 years and have a zero salvage value. In 2017,the decision was made to extend the total life of this asset to 10years and to estimate the salvage value at $5,000.
a) Indicate if the situation is a change in accountingprinciple, a change in accounting estimate or an error in thefinancial statement. What is the proper accounting treatment(retrospective, restatement,prospective) for each of theseassets?
You must support your conclusions with cites to the applicableguidance listed in the FASB Codification. Ignore tax implicationsand assume all errors are material to the client and requireadjustment.
b) What journal entries would be appropriate at12/31/2017 for each of these assets? Ignore taximplications.
