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Mathys Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants to get everything straightened out. Consequently, she has proposed
Mathys Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants "to get everything straightened out." Consequently, she has proposed the following accounting changes in connection with Mathys Inc.'s 2020 financial statements. (a) -Your answer is partially correct. For each of the changes described above, decide whether: (1) (2) The change involves an accounting principle, accounting estimate, or correction of an error. Restatement of opening retained earnings is required. 1. 2. At December 31, 2019, the client had a receivable of $820,000 from Hendricks Inc. on its balance sheet. Hendricks Inc. has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item. The client proposes the following changes in depreciation policies. (a) For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2019, would have been $250,000 less. The effect of the change on 2020 income alone is a reduction of $60,000. (b) For its new equipment in the leasing division, the client proposes to adopt the sum-of-the- years'-digits depreciation method. The client had never used SYD before. The first year the client operated a leasing division was 2020. If straight-line depreciation were used, 2020 income would be $110,000 greater. (1) (2) Accounting principle No changes Accounting estimate Appropriate Accounting principle Appropriate >
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