Which of the following is true regarding whether IFRS specifically addresses the accounting and reporting for effects of changes in accounting policies?
Direct effects Indirect effects
(a) Yes Yes
(b) No No
(c) No Yes
(d) Yes No
The correct answer is option (d)— yes for the direct effect and no for indirect effect.
The correct answer is option (d)
There will be a direct effect when there is a change in accounting principle but the IFRS does not explicitly address the accounting and the disclosure of the indirect effect of the change in accounting principle.
The IFRS only addresses the accounting and reporting for effects of changes in accounting policies in direct effects but not an indirect effect.
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?
Whittier Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any salvage inventory. On December 31, 2017, it was determined that salvage inventory should be valued at $52,000. Of this amount, $29,000 arose during the current year. How does this information affect the financial statements to be prepared at the end of 2017?
Gordon 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 $100,000 $ 90,000 $100,000 2013 70,000 65,000 160,000 2014 90,000 80,000 235,000 2015 120,000 130,000 340,000 2016 300,000 290,000 590,000 2017 305,000 310,000 780,000
Instructions (a) What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014?
(b) What is the beginning retained earnings balance at January 1, 2017, if Gordon prepares comparative financial statements starting in 2017?
(c) What is the beginning retained earnings balance at January 1, 2018, if Gordon prepares single-period financial statements for 2018?
(d) What is the net income reported by Gordon in the 2017 income statement if it prepares comparative financial statements starting with 2015?
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