Flounder Corp., which began operations in January 2017, follows IFRS and is subject to a 30% income tax rate. In 2020, the following events took place: 1. 2. 3. The company switched from the zero-profit method to the percentage-of-completion method of accounting for its long-term construction projects. This change was a result of experience with the project and improved ability to estimate the costs to completion and therefore the percentage complete. Due to a change in maintenance policy, the estimated useful life of Flounder's fleet of trucks was lengthened. It was discovered that a machine with an original cost of $230,000, residual value of $31,200, and useful life of 4 years was expensed in error on January 23, 2019, when it was acquired. This situation was discovered after preparing the 2020 adjusting entries but before calculating income tax expense and closing the accounts. Flounder uses straight-line depreciation and takes a full year of depreciation in the year of acquisition. The asset's cost had been appropriately added to the capital cost allowance (CCA) class in 2019 before the CCA was calculated and claimed. As a result of an inventory study early in 2020 after the accounts for 2019 had been closed, management decided that the weighted average cost formula would provide a more relevant presentation in the financial statements than does the FIFO cost formula. In making the change to weighted average cost, Flounder determined the following: 4. Date Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Inventory-FIFO Cost $91,000 121,000 188,000 Inventory-Weighted Average Cost $77.900 93,800 143,400 Prepare the journal entries in 2020 to correct the books where necessary, assuming that the 2020 books have not been closed. Assume that the change from FIFO to weighted average cost can be justified as resulting in more relevant financial information. Disregard the effects of the corrections on income tax. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts.) No. Account Titles and Explanation Debit Credit 1. Accumulated Depreciation Machinery 16200 Depreciation Expense 5400 Retained Earnings 10800 2. Sales Tax Expense 51500 Retained Earnings 51500 3. Income Tax Payable 91000 Retained Eamings 91000 4. Accumulated Amortization. Patents 233100 Amortization Expense 51800 Retained Earnings 181300 5. No Entry No Entry 6. Retained Earnings 71500 Loss on Disposal of Assets 71500 Analyze each of the four 2020 events described above. For each event, identify the type of accounting change that has occurred, and indicate whether it should be accounted for with full retrospective application, partial retrospective application, or prospective application Type of Accounting Change Accounted For 2. 3
