Exercise 22-4

Headland Company started operations on January 1, 2012, and has used the FIFO method of inventory valuation since its inception. In 2018, it decides to switch to the average-cost method. You are provided with the following information.

Net Income

Retained Earnings

(Ending Balance)

Under FIFO

Under Average-Cost

Under FIFO

2012$97,300$86,600$109,600201366,50061,300167,800201491,80081,600254,9002015119,600130,300331,7002016325,200316,000556,5002017295,200300,100824,100

(a)What is the beginning retained earnings balance at January 1, 2014, if Headland prepares comparative financial statements starting in 2014?

Retained earnings, January 1$

(b)What is the beginning retained earnings balance at January 1, 2017, if Headland prepares comparative financial statements starting in 2017?

Retained earnings, January 1$

(c)What is the beginning retained earnings balance at January 1, 2018, if Headland prepares single-period financial statements for 2018?

Retained earnings, January 1$

(d)What is the net income reported by Headland in the 2017 income statement if it prepares comparative financial statements starting with 2015?

Exercise 22-10

Listed below are various types of accounting changes and errors.

For each change or error, indicate how it would be accounted for using the following code:

1.Change in a plant assets salvage value.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

2.Change due to overstatement of inventory.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

3.Change from sum-of-the-years-digits to straight-line method of depreciation.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

4.Change from presenting unconsolidated to consolidated financial statements.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

5.Change from LIFO to FIFO inventory method.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

6.Change in the rate used to compute warranty costs.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

7.Change from an unacceptable accounting principle to an acceptable accounting principle.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

8.Change in a patents amortization period.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

9.Change from completed-contract to percentage-of-completion method on construction contracts.

Accounted for prospectively

Accounted for retrospectively

Neither of the above

10.Change from FIFO to average-cost inventory method.

Exercise 22-11

Bramble Co. purchased a equipment on January 1, 2015, for $561,000. At that time, it was estimated that the equipment would have a 10-year life and no salvage value. On December 31, 2018, the firms accountant found that the entry for depreciation expense had been omitted in 2016. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2018. At present, the company uses the sum-of-the-years-digits method for depreciating equipment.

Prepare the general journal entries that should be made at December 31, 2018, to record these events. (Ignore tax effects.)(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2018

(To correct for the omission of depreciation expense in 2016.)

Dec. 31, 2018

(To record depreciation expense for 2018.)