Calculate annual depreciation after the estimate change

Reference no: EM13214972

The Following Changes Have Been Made to the Assignments

Problem Change Amount To:
Ex 20-18 changed to Ex 20-17
Change the following ending balances:
Cost 60,000

Pb 21-11 change to exercise 21-27, use indirect method
Change the following ending balances:
Cash 26
Accounts receivable 178
Prepaid insurance 7
Inventory 285

Liabilities:
Accounts payable 87
Accrued expenses 6
Notes payable 50
Bonds payable 160

* The addition of 519 to building was a lease transaction and therefore is not included in cash flow Change the following ending balances:
Cash 207
Accounts receivable 96
Less: Allowance -25
Prepaid expenses 27
Inventory 165

Liabilities:
Accounts payable 25
Accrued liabilities 112
Notes payable 75
Mortgage payable 111
Bonds payable 95

Exercise 20-17
Requirement 1

Depreciation expense
Accumulated depreciation

Calculation of annual depreciation after the estimate change:
Cost
Old annual depreciation
Depreciation to date
Book value
Revised residual value
Revised depreciable base
Estimated remaining life
$ New annual depreciation

Requirement 2

Depreciation expense
Accumulated depreciation

Calculation of annual depreciation after the estimate change:
$40,000 Cost
Previous depreciation:
2009:
2010:
Depreciation to date
Book value
Revised residual value
Revised depreciable base
Estimated remaining life: 8years
2011 depreciation

Analysis Case 20-10
Requirement 1
DRS's change in depreciation method for computers represents a change ???????????????????????
This is because a change in the depreciation method is adopted to reflect a change in (a) ???????????????
(b) ???????????????????, or
(c) ?????????????????.
Accordingly, the company reports the change ????????????????????????????????????????
The undepreciated cost remaining at the time of the change would be depreciated ????????????????????????????
The change in residual value for the office building is a change ???????????????????????
The company reports the ??????????????????????????/
The undepreciated cost remaining at the time of the change would be reduced ?????????????????????????/
and the resulting amount would be depreciated ??????????????????????????????????????
DRS's change in the specific subsidiaries constituting the group of companies for which consolidated financial statements are presented is a change in ?????????????????????????
This change is disclosed ??????????????????????????????????/
In the initial set of financial statements occurring after the change, the nature of and reason for the change must be ???????????????????????????????
Requirement 2 COMPLETED - USE FOR REFERENCE
Applying the same accounting principles from one reporting period to another enhances the comparability of accounting information across accounting periods. The FASB's conceptual framework describes consistency as one of the important qualitative characteristics of accounting information. When accounting changes occur, the usefulness of the comparative financial statements is enhanced with retrospective application of those changes, especially when assessing trends.
If a change in accounting principle occurs, the nature and effect of a change should be disclosed. Disclosure is desirable because of the presumption that an accounting principle once adopted will not change.

Balance Sheet
Assets: 12/31/2010 Debit Credit 12/31/2011
Cash 110 48
Accounts receivable 132 a 200
Prepaid insurance 3 b 12
Inventory 175 c 300
Buildings and equip. 350 230 180 400

Less: Acc. depreciation 240 50 119
171
530 841
Liabilities:
Accounts payable 100 d 76
Accrued expenses 11 e 3
Notes payable 0 f 98
Bonds payable 0 g 192
Shareholders' Equity:
Common stock 400 400
Retained earnings 19 h i 72
530 841
***Given amounts - Sale and purchase of equipment
103 Net income
50 Dividends

Inflows Outflows
Operating activities:
Net income i
Increase in accounts receivable a
Increase in prepaid insurance b
Increase in inventory c
Depreciation 50 171
Decrease in accounts payable d
Decrease in accrued liabilities e
Net cash flow
Net cash flows
Investing activities:
Sale of building 180 230
Purchase of building
Net cash flow

Net cash flows
Financing activities:
Issuance of note payable f
Issuance of bonds payable g
Payment of cash dividends h
Net cash flow

Change in cash
Beg bal
End bal

Problem 21-14
Surmise Company
Spreadsheet for the Statement of Cash Flows

Dec.31 Changes Dec. 31
2010 Debits Credits 2011
Balance Sheet
Assets:
Cash 40 (16) Changed
Accounts receivable 96 (5) Changed
Less: Allowance (4) (3) Changed
Prepaid expenses 5 (8) Changed
Inventory 130 (6) Changed

Long-term investment 40 (10) 80
Land 100 100
Buildings and equip. 300 (11) X 411
Less: Acc. depreciation (120) (2) (142)
Patent 17 (4) 16
604 Changed
Liabilities:
Accounts payable 32 (7) Changed
Accrued liabilities 10 (9) Changed
Notes payable 0 (12) Changed
Lease liability 0 X (11) Changed
Bonds payable 125 (13) Changed
Shareholders' Equity:
Common stock 50 (14) 60
Paid-in capital-ex. of par 205 (14) 245
Retained earnings 182 (15) (1) 212
604 Changed
X Noncash investing and financing activity
Spreadsheet for the Statement of Cash Flows
(continued)
Dec.31 Changes Dec. 31
2010 Debits Credits 2011
Statement of Cash Flows
Operating activities:
Net income (1)
Adjustments for noncash effects:
Depreciation expense (2)
Bad debt expense (3)
Patent amortization expense (4)
Decrease in accounts receivable (5)
Increase in inventory (6)
Decrease in accounts payable (7)
Increase in prepaid expenses (8)
Decrease in accrued liabilities (9)
Net cash flows 40
Investing activities:
Purchase of LT investment (10)
Net cash flows (40)
Financing activities:
Issuance of note payable (12)
Retirement of bonds payable (13)
Sale of common stock (14)
Payment of cash dividends (15)
Net cash flows 5
Net increase in cash __ (16) 5
Totals 451 451

COMPLETE STATEMENT BELOW
Surmise Company
Statement of Cash Flows
For year ended December 31, 2011 ($ in millions)

Cash flows from operating activities:
Net income $
Adjustments for noncash effects:
Depreciation expense
Bad debt expense
Patent amortization expense
Changes in operating assets and liabilities:
Decrease in accounts receivable
Increase in inventory
Decrease in accounts payable
Increase in prepaid expenses
Decrease in accrued liabilities
Net cash flows from operating activities $40

Cash flows from investing activities:
Purchase of long-term investment
Net cash flows from investing activities (40)

Cash flows from financing activities:
Issuance of note payable
Retirement of bonds payable
Sale of common stock
Payment of cash dividends
Net cash flows from financing activities
Net increase in cash 5

Cash balance, January 1
Cash balance, December 31 $

Noncash investing and financing activities:

Acquired buildings by capital lease $111

Reference no: EM13214972

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