Reference no: EM131870416
Questions -
1. The management and accountants of Hopkins Inc. made the following decision about one depreciable asset:
Asset A was purchased on January 1, 2008 for $480,000. For depreciation purposes, the double-declining-balance method was originally chosen. The asset was expected to be useful for 5 years with no salvage value. On January1, 2010, the decision was made to change the depreciation method from the double-declining-balance to the straight-line method while the estimates of useful life and salvage value remained unchanged.
Required:
(1) Based on SFAS 154 (ASC 250), the proper accounting treatment for the depreciation method change and the change in accounting estimate is the prospective approach. Prepare the journal entry necessary to record the depreciation expense for asset A in 2010.
(2) Describe other accounting procedures needed to apply the prospective approach for change in accounting estimate.
2. United Inc. changed from LIFO to FIFO inventory costing method on January 1, 2011. Inventory values at the end of each year since the inception of the company are as follow:
Year LIFO FIFO Difference
2009 $200,000 $220,000 $20,000
2010 300,000 350,000 $50,000
Required:
(1) Based on SFAS 154 (ASC250), the proper accounting treatment for voluntary accounting method change is the retrospective approach. Prepare the journal entry necessary to record this inventory cost flow assumption change in 2011. The income tax rate is 30%.
(2) Describe other accounting procedures needed to apply the retrospective approach for change in accounting principle.
3. Oscar Company is in the process of adjusting and correcting its books at the end of 2011. In reviewing its records, the following information is compiled.
Oscar has failed to accrue salary payable at the end of each of the last three years, as follows:
December 31, 2009 $6,000
December 31, 2010 $5,000
December 31, 2011 $7,000
Required: Ignore all tax effects. Prepare the journal entry necessary at December 31, 2011 to record the above correction. The books of 2011 are still open.