Classify the change as a change in accounting principle

Reference no: EM131922297

Question: AICPA

Adapted

Sometimes a business entity may change its method of accounting for certain items. It may classify the change as a change in accounting principle, a change in accounting estimate, or a change in reporting entity. The following are three situations faced by Hyde Company relating to accounting changes.

Situation I: Hyde determined that the depreciable lives of its fixed assets are presently too long to fairly match the cost of the fixed assets with the revenue produced. Hyde decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years.

Situation II: On December 31, 2012, Hyde owned 51% of Patten Company, at which time Hyde reported its investment using the cost method, owing to political uncertainties in the country in which Patten was located. On January 2, 2013, the management of Hyde was satisfied that the political uncertainties were resolved and the assets of the company were in no danger of nationalization. Accordingly, Hyde will prepare consolidated financial statements for Hyde and Patten for the year ended December 31, 2013.

Situation III: Hyde decides in January 2013 to adopt the straight-line method of depreciation for equipment. The straight-line method will be used for new acquisitions, as well as for previously acquired equipment for which depreciation had been provided on an accelerated basis.

Directions: For each of the preceding situations, research the related generally accepted accounting principles and prepare a short memo to the president that explains the following: type of accounting change; manner of reporting the change under current generally accepted accounting principles, including a discussion, where applicable, of how amounts are computed; effect of the change on the balance sheet and income statement; and note disclosures that would be necessary. Cite your references and applicable paragraph numbers.

Reference no: EM131922297

Questions Cloud

Determine the net present value for each machine : Determine the net present value for each machine if the required rate of return is 13 percent. (Ignore taxes.) (Round present value factor calculations).

What is real cost of tatooine to be used in special order : Alderon Enterprises is evaluating a special order it has received for a ceramic fixture to be used in aircraft engines. Alderon has recently been operating.

Advise the company as to the preferable alternative : Albacore Limited is interested in acquiring the services of a highly qualified engineering professional. This individual has agreed to become an employee.

By what amount will agee total paid-in capital decline : Assuming that Agee retires shares it reacquires (restores their status to that of authorized but unissued shares), by what amount will Agee's total paid-in.

Classify the change as a change in accounting principle : Sometimes a business entity may change its method of accounting for certain items. It may classify the change as a change in accounting principle, a change.

What is the book-tax difference : What is its 2016 book-tax difference associated with its NOL? Is it favorable or unfavorable? Is it permanent or temporary?

Determine the estate tax liability : On the advice of her estate planner, Grace made taxable gifts of $5 million in the 2011. Grace dies in late 2016 leaving a taxable estate of $1.1 million.

Review problem of the agent blaze : Agent Blaze uses flexible budgets that are based on the following data: Prepare a flexible selling and administrative expenses budget for January 2016.

What is the remeasured value of the land account : Assume that Aerkion is a foreign subsidiary of a U.S. multinational company. On the December 31, 2015, balance sheet.

User Account

All Pages