Listed below are three independent, unrelated sets of facts relating to accounting changes.
Situation 1
Penelope Millhouse Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Millhouse president, A. G. Shumway, is willing to change to the accrual method of revenue recognition.
Situation 2
Cheri Nestor Co. decides in January 2008 to change from FIFO to weighted-average pricing for its inventories.
Situation 3
Laura Osmund Co. determined that the depreciable lives of its fixed assets are too long at present to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years.
Instructions
For each of the situations described, provide the information indicated below.
(a) Type of accounting change.
(b) Manner of reporting the change under current generally accepted accounting principles including a discussion, where applicable, of how amounts are computed.
(c) Effect of the change on the balance sheet and income statement.