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Chapter 22: Accounting Changes and Error Analysis

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Intermediate Accounting (Kieso)
Pages: 1266 - 1329

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91 Questions for Chapter 22: Accounting Changes and Error Analysis

  1. You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following information.

    Found on Page 1320
  2. Access the glossary (“Master Glossary”) to answer the following.

    Found on Page 1325
  3. Palmer Co. is evaluating the appropriate accounting for the following items. 1. Management has decided to switch from the FIFO inventory valuation method to the LIFO inventory valuation method for all inventories. 2. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior year’s physical inventory sheets for an entire warehouse were mislaid and excluded from last year’s count. 3. Palmer’s Custom Division manufactures large-scale, custom-designed machinery on a contract basis. Management decided to switch from the completed-contract method to the percentage-of-completion method of accounting for longterm contracts. Identify and explain whether each of the above items is a change in accounting principle, a change in estimate, or an error

    Found on Page 1307
  4. Simmons Corporation owns stock of Armstrong, Inc. Prior to 2017, the investment was accounted for using the equity method. In early 2017, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2017, Armstrong earned net income of $80,000 and paid dividends of $95,000. Prepare Simmons’s entries related to Armstrong’s net income and dividends, assuming Simmons now owns 10% of Armstrong’s stock.

    Found on Page 1307
  5. Found on Page 1311
  6. Prior to 2017, Heberling Inc. excluded manufacturing overhead costs from work in process and finished goods inventory. These costs have been expensed as incurred. In 2017, the company decided to change its accounting methods for manufacturing inventories to full costing by including these costs as product costs. Assuming that these costs are material, how should this change be reflected in the financial statements for 2016 and 2017?

    Found on Page 1306
  7. Elliott Corp. failed to record accrued salaries for 2016, $2,000; 2017, $2,100; and 2018, $3,900. What is the amount of the overstatement or understatement of Retained Earnings at December 31, 2019?

    Found on Page 1306
  8. Pam Erickson Construction Company changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2018. For tax purposes, the company employs the completed-contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from: Percentage-of-Completion Completed-Contract Difference 2017 $780,000 $590,000 $190,000 2018 700,000 480,000 220,000 Instructions (a) Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 2018? (b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?

    Found on Page 1308
  9. Where can authoritative IFRS related to accounting changes be found?

    Found on Page 1328
  10. An entry to record Purchases and related Accounts Payable of $13,000 for merchandise purchased on December 23, 2018, was recorded in January 2019. This merchandise was not included in inventory at December 31, 2018. What effect does this error have on reported net income for 2018? What entry should be made to correct for this error, assuming that the books are not closed for 2018?

    Found on Page 1306

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