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ACCT 387 Study Guide - Midterm Guide: Accrual, Pro Forma, Financial Statement

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School
Iowa State University
Department
Accounting
Course
ACCT 387
Professor
Lamboy Ruiz Melvin

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Document Summary

Correction of understated depreciation expense in a prior period . All of the following are examples of a change in accounting principle except a change from: the double-declining balance method to the straight-line method of depreciation. On january 1, 2014, columbia corp. changed its inventory method to fifo from lifo for both financial and income tax reporting purposes. ,320,000 increase in the january 1, 2014 inventory. Assume that the income tax rate for all years is 25%. The cumulative effect of the accounting change should be reported by. Retained earnings statement as a ,740,000 addition to the beginning balance. A change from fifo to lifo inventory valuation which leads to subjective assumptions about the lifo layers established in prior periods: Requires no restatement of prior years" income. A change in the useful life and salvage value of a depreciable asset is handled retrospectively.

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Related Questions

1. (TCO E) Which of the following isnot treated as a change in accounting principle? (Points :5)

A change fromcompleted-contract to percentage-of-completion
A change from LIFO to FIFO forinventory valuation
A change from full-cost tosuccessful efforts in the extractive industry
A change to a different methodof depreciation for plant assets

Question 2. 2. (TCO E) What type of accountingchange/correction should always be accounted for in the current andfuture accounting periods? (Points : 5)

Change in accountingprinciple
Change in reportingentity
Change in accountingestimate
Correction of anerror

Question 3. 3. (TCO E) On December 31, 2013,Gifts Galore, Inc. appropriately changed its inventory valuationmethod from weighted-average cost to FIFO method for financialstatement and income tax purposes. The change will result in a$3,600,000 increase in the beginning inventory at January 1, 2013.Assume a 35% income tax rate. The cumulative effect of thisaccounting change on beginning retained earnings is (Points :5)

$0.
$1,260,000.
$3,600,000.
$2,340,000.

Exercise 22-2 Holder-Webb Company began operations on January 1,2012, and uses the average-cost method of pricing inventory.Management is contemplating a change in inventory methods for 2015.The following information is available for the years 2012–2014. NetIncome Computed Using Average-Cost Method FIFO Method LIFO Method2012 $15,958 $19,564 $12,444 2013 18,366 20,057 14,976 2014 20,46025,174 16,520 (a) Prepare the journal entry necessary to record achange from the average cost method to the FIFO method in 2015.(Credit account titles are automatically indented when amount isentered. Do not indent manually. If no entry is required, select"No Entry" for the account titles and enter 0 for the amounts.)Account Titles and Explanation Debit Credit (b) Determine netincome to be reported for 2012, 2013, and 2014, after giving effectto the change in accounting principle. Net Income 2012 $ 2013 $2014 $ (c) Assume Holder-Webb Company used the LIFO method insteadof the average cost method during the years 2012–2014. In 2015,Holder-Webb changed to the FIFO method. Prepare the journal entrynecessary to record the change in principle. (Credit account titlesare automatically indented when amount is entered. Do not indentmanually. If no entry is required, select "No Entry" for theaccount titles and enter 0 for the amounts.) Account Titles andExplanation Debit Credit Click if you would like to Show Work forthis question: Open Show Work

During 2016 (its first year of operations) and 2017, Batali Foods used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2018, Batali decided to change to the average method for both financial reporting and tax purposes. Income components before income tax for 2018, 2017, and 2016 were as follows ($ in millions): 2018 2017 2016 Revenues $ 420 $ 390 $ 380 Cost of goods sold (FIFO) (46 ) (40 ) (38 ) Cost of goods sold (average) (62 ) (56 ) (52 ) Operating expenses (254 ) (250 ) (242 ) Dividends of $20 million were paid each year. Batali’s fiscal year ends December 31. Required: 1. Prepare the journal entry at the beginning of 2018 to record the change in accounting principle. (Ignore income taxes.) 2. Prepare the 2018–2017 comparative income statements. 3. & 4. Determine the balance in retained earnings at January 2017 as Batali reported using FIFO method and determine the adjustment of balance in retained earnings as on January 2017 using average method instead of FIFO method.