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A4-14 Change in Accounting Policy: Moncton Developments Ltd. was established in early 20X2. During the first three years, the company followed the policy of expensing
A4-14 Change in Accounting Policy: Moncton Developments Ltd. was established in early 20X2. During the first three years, the company followed the policy of expensing its development costs rather than capitalizing and amortizing them. It did so because in the early stages of the company's life, they felt there was no reasonable assurance that the development costs would meet the criteria for capitalization. However, Moncton's development activities turned out to be very successfuls Therefore, the company decided in 20x4 to change its method of accounting for product development expenses from expensing such items to capitalizing them and amortizing them over the period of expected benefit. To prepare for the change the following data were gathered! 20X4 20X3 20X2 $200,000 70,000 $150,000 70,000 $250,000 60,000 Product development costs Depreciation and amortization, prior to change Restated amortization, after policy change Net Income before income tax, old policy Net Income after income tax (at 30%), old 110,000 $ 120,000 90,000 840,000 770,000 300,000 policy 588,000 539,000 210,000 Earnings per share $ 11.76 10.78 $ 4.20 Moncton Developments has 50,000 common shares outstanding. The balance of retained earnings was $690,000 at 31 December 20X3. During 20X4, the company declared dividends of $50,000. Required: 1. Determine the numerical impact of the policy change on net income and EPS for 20x2 and 2003, 2. Prepare the retained earnings column (or section of the 20x4 statement of changes in equity, giving appropriate treatment to the change in accounting policy. 3. Prepare an appropriate disclosure
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