ASC EXERCISE No. 1 ERROR CORRECTION & CHANGE IN DEPRECIATION METHOD GENERAL MANUFACTURERS INC. purchased and installed a large piece of equipment at the beginning of 2019 and capitalized a cost of $3,174,000. This initial capital cost in General's books included the following expenditures: Purchase price Freight charges Installation charges Annual maintenance charge Total $ 2,820,000 27,000 17,000 310,000 $ 3,174,000 GENERAL estimated a five-year useful life for the equipment and used sum-of-the-years digits depreciation. Because of the nature of the equipment, it has no residual value. The sum-of-the-years digits method was used to determine depreciation expense for 2019 and 2020. In 2021, after the 2020 financial statements were issued, the company decided to switch to the units of production method of depreciation for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment. Additionally, the purchase price ($2,820,000) included freight and insurance charges as the machine was shipped FOB destination and those costs were paid for by the vendor. Required: Use the Accounting Standards Codification system to search for an answer to each question listed below. No computations or journal entries are needed in answering these questions. Type your concise answers in the space provided and upload your completed document (MS Word) in the assignment area in Brightspace. Question/ What is an appropriate ASC Your Answer reference for your answer? 1. Should the freight charges associated with General's equipment purchase be capitalized or expensed? Use the space below to answer your question. Make sure to list the ASC reference(s) for your answer in the ASC reference column. ASC 2. Should annual maintenance charge be capitalized or expensed? Make sure to list the ASC reference(s) for your answer in the ASC reference column. ASC 3. How should General account for the change in depreciation method? Retrospectively or Prospectively? Make sure to list the ASC reference(s) for your answer in the ASC reference column. ASC 4. How should General account for errors included in the original capitalized cost of the equipment? Retrospectively or Prospectively. Make sure to list the ASC reference(s) for your answer in the ASC reference column. You must list in summary form each error that occurred. ASC a. b. c. d. Error No. 1 Error No. 2 Error No. 3. Error No. 4. ASC EXERCISE No. 1 ERROR CORRECTION & CHANGE IN DEPRECIATION METHOD GENERAL MANUFACTURERS INC. purchased and installed a large piece of equipment at the beginning of 2019 and capitalized a cost of $3,174,000. This initial capital cost in General's books included the following expenditures: Purchase price Freight charges Installation charges Annual maintenance charge Total $ 2,820,000 27,000 17,000 310,000 $ 3,174,000 GENERAL estimated a five-year useful life for the equipment and used sum-of-the-years digits depreciation. Because of the nature of the equipment, it has no residual value. The sum-of-the-years digits method was used to determine depreciation expense for 2019 and 2020. In 2021, after the 2020 financial statements were issued, the company decided to switch to the units of production method of depreciation for this equipment. At that time, the company's controller discovered that the original cost of the equipment incorrectly included one year of annual maintenance charges for the equipment. Additionally, the purchase price ($2,820,000) included freight and insurance charges as the machine was shipped FOB destination and those costs were paid for by the vendor. Required: Use the Accounting Standards Codification system to search for an answer to each question listed below. No computations or journal entries are needed in answering these questions. Type your concise answers in the space provided and upload your completed document (MS Word) in the assignment area in Brightspace. Question/ What is an appropriate ASC Your Answer reference for your answer? 1. Should the freight charges associated with General's equipment purchase be capitalized or expensed? Use the space below to answer your question. Make sure to list the ASC reference(s) for your answer in the ASC reference column. ASC 2. Should annual maintenance charge be capitalized or expensed? Make sure to list the ASC reference(s) for your answer in the ASC reference column. ASC 3. How should General account for the change in depreciation method? Retrospectively or Prospectively? Make sure to list the ASC reference(s) for your answer in the ASC reference column. ASC 4. How should General account for errors included in the original capitalized cost of the equipment? Retrospectively or Prospectively. Make sure to list the ASC reference(s) for your answer in the ASC reference column. You must list in summary form each error that occurred. ASC a. b. c. d. Error No. 1 Error No. 2 Error No. 3. Error No. 4
