Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Sometimes a business entity may change its method of accounting for certain items. The change may be classified as a change in accounting principle, a

Sometimes a business entity may change its method of accounting for certain items. The change may be classified as a change in accounting principle, a change in accounting estimate, or a change in reporting entity. Listed below are three independent, unrelated sets of facts relating to accounting changes. Situation 1 A company determined that the depreciable lives of its fixed assets were presently too long to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the-depreciable lives of all its existing fixed assets by five years. Situation 2 On December 31, 2005, Gary Company owned 51 percent of Allen Company, at which time Gary reported its investment using the cost method due to political uncertainties in the country in which Allen was located. On January 2, 2006, the management of Gary Company was satisfied that the political uncertainties were resolved and that the assets of the company were in no danger of nationalization. Accordingly, Gary will prepare consolidated financial statements for Gary and Allen for the year ended December 31, 2006. Situation 3 A company decides in January 2006 to adopt the straight-line method of depreciation for plant equipment. This method will be used for new acquisitions as well as for previously acquired plant equipment for which depreciation had been provided on an accelerated basis. Required: For each of the preceding situations, provide the information indicated below. Complete your discussion of each situation before going on to the next situation. a. Type of accounting change. b. Manner of reporting the change under current GAAP, including a discussion, where applicable, of how amounts are computed. c. Effects of the change on the statement of financial position and earnings statement. d. Required footnote disclosures Additional Requirements

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

College Accounting A Practical Approach

Authors: Jeffrey Slater, Debra Good

13th Canadian edition

134616316, 134166698, 9780134632407 , 978-0134166698

More Books

Students also viewed these Accounting questions

Question

5. It is the needs of the individual that are important.

Answered: 1 week ago