vRay Solutions decided to make the following changes in its accounting policies on January 1, 2018:a. Changed from the cash to the accrual basis of accounting for recognizing revenue on its service contracts.b. Adopted straight-line depreciation for all future equipment purchases, but continued to use accelerated depreciation for all equipment acquired before 2018.c. Changed from the LIFO inventory method to the FIFO inventory method.Required:For each accounting change Ray undertook, indicate the type of change and how Ray should report the change.Be specific.

vRay Solutions decided to make the following changes in its accounting policies on January 1, 2018:a. Changed from the cash to the accrual basis of accounting for recognizing revenue on its service contracts.b. Adopted straight-line depreciation for all future equipment purchases, but continued to use accelerated depreciation for all equipment acquired before 2018.c. Changed from the LIFO inventory method to the FIFO inventory method.Required:For each accounting change Ray undertook, indicate the type of change and how Ray should report the change.Be specific.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 6P: Kraft Manufacturing Company manufactures two products: Mult and Tran. At December 31, 2019, Kraft...

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The management of Knight Company has asked its accountingdepartment to describe the effect upon the company’s financial position and its income statements of accounting for inventories onthe LIFO rather than the FIFO basis during 2020 and 2021. The accounting department is to assume that the change to LIFO wouldhave been effective on January 1, 2020, and that the initial LIFO base would have been the inventory value on December 31, 201Presented below are the company’s financial statements and other data for the years 2020 and 2021 when the FIFO method wasemployed.Financial Position as of12/31/19 12/31/20 12/31/21Cash $ 50,000 $ 75,000 $ 90,000Accounts receivable 160,000 200,000 220,000Inventory 280,000 315,000 336,000Other assets 200,000 220,000 245,000Total assets $690,000 $810,000 $891,000Accounts payable $220,000 $235,000 $250,000Other liabilities 80,000 90,000 120,000Common stock 100,000 100,000 100,000Retained earnings 290,000 385,000 421,000Total liabilities and equity $690,000…
Ray Solutions decided to make the following changes in its accounting policies on January 1, 2016: a. Changed from the cash to the accrual basis of accounting for recognizing revenue on its service contracts. b. Adopted straight-line depreciation for all future equipment purchases, but continued to use accelerated depreciation for all equipment acquired before 2016. c. Changed from the LIFO inventory method to the FIFO inventory method. Required: For each accounting change Ray undertook, indicate the type of change and how Ray should report the change. Be specific.
Vaughn Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Vaughn had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Vaughn concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold. Income taxes are ignored. Inventory Determined by Cost of Goods Sold Determined by Date LIFO Method FIFO Method LIFO Method FIFO Method January 1, 2018 $ 0 $ 0 $ 0 $ 0 December 31, 2018 100 8 800 892 December 31, 2019 200 220 940 828 December 31, 2020 350 410 1,100 1,060 Retained earnings reported under LIFO are as follows. Retained Earnings Balance December 31, 2018 $1,060…
Martinez Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Martinez had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Martinez concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold. Income taxes are ignored. Inventory Determined by Cost of Goods Sold Determined by Date LIFO Method FIFO Method LIFO Method FIFO Method January 1, 2018 $ 0 $ 0 $ 0 $ 0 December 31, 2018 100 8 850 942 December 31, 2019 180 250 990 828 December 31, 2020 310 400 1,230 1,210 Retained earnings reported under LIFO are as follows. Other information: 1. For each year presented, sales are…
Taveras Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Taveras had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Taveras concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold. Inventory Determined by Cost of Goods Sold Determined by Date LIFO Method FIFO Method LIFO Method FIFO Method January 1, 2018 $ 0 $ 0 $ 0 $ 0 December 31, 2018 100 80 800 820 December 31, 2019 200 240 1,000 940 December 31, 2020 320 390 1,130 1,100 Other information: 1. For each year presented, sales are $3,000 and operating expenses are $1,000. 2.…
The management of Tritt Company has asked its accounting department to describe the effect upon the company's financial position and its income statements of accounting for inventories on the LIFO rather than the FIFO basis during 2020 and 2021. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2020, and that the initial LIFO base would have been the inventory value on December 31, 2019. The following are the company's financial statements and other data for the years 2020 and 2021 when the FIFO method was employed. Financial Position as of 12/31/19 12/31/20 12/31/21 Cash $ 90,000 $130,000 $154,000 Accounts receivable 80,000 100,000 120,000 Inventory 120,000 140,000 176,000 Other assets 160,000 170,000 200,000 Total assets $450,000 $540,000 $650,000 Accounts payable $ 40,000 $ 60,000 $ 80,000 Other liabilities 70,000 80,000 110,000 Common stock 200,000 200,000 200,000 Retained earnings…
Martinez Co. decides at the beginning of 2020 to adopt the FIFO method of inventory valuation. Martinez had used the LIFO method for financial reporting since its inception on January 1, 2018, and had maintained records adequate to apply the FIFO method retrospectively. Martinez concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The following table presents the effects of the change in accounting principles on inventory and cost of goods sold. Income taxes are ignored. Inventory Determined by Cost of Goods Sold Determined by Date LIFO Method FIFO Method LIFO Method FIFO Method January 1, 2018 $ 0 $ 0 $ 0 $ 0 December 31, 2018 100 8 850 942 December 31, 2019 180 250 990 828 December 31, 2020 310 400 1,230 1,210 Retained earnings reported under LIFO are as follows. Other information: 1. For each year presented, sales are…
Toolum Corporation began operations on January 1, 2020, and uses the average-cost method of pricing inventory. Management is contemplating a change ininventory methods for 2023. The following information is available for the years2020–2022 Requirements:(Ignore all tax effects.)a. Prepare the journal entry necessary to record a change from the average-costmethod to the FIFO method in 2023. Show all workings b. Determine net income to be reported for 2020, 2021, and 2022, after givingeffect to the change in accounting policy.
When the records of ABC Corporation were reviewed at the close of 2021, the following errors were discovered. For each item, indicate by placing an X in the appropriate column(s) on the answer sheet whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2020 and 2021. Item Failure to record amortization of patent in 2021. Failure to record the correct amount of ending 2020 inventory. The amount was understated because of an error in calculation. Failure to record merchandise purchased in 2020. Merchandise was also omitted from ending inventory in 2020 but was not yet sold. Failure to record accrued interest on notes payable in 2020; that amount was recorded when paid in 2021. Failure to reflect supplies on hand on balance sheet at end of 2020.
Koopman Company began operations on January 1, 2018, and uses they FIFO inventory method for financial reporting and the average cost inventory method for income taxes. At the beginning of 2020, Koopman decided to switch to the average cost inventory method for financial reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the FIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Koopman is subject to a 21% income tax rate in all years; it pays the income taxes payable of a current year in the first quarter of the next year. Koopman had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Koopman had cash of 10,000, inventory of 24,000, other assets of 70,800, accounts payable of 4,500, and income taxes payable of 6,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in methods at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.
Schmidt Company began operations on January 1, 2018, and used the LIFO inventory method for both financial reporting and income taxes. However, at the beginning of 2020, Schmidt decided to switch to the average cost inventory method for financial and income tax reporting. It had previously reported the following financial statement information for 2019: An analysis of the accounting records discloses the following cost of goods sold under the LIFO and average cost inventory methods: There are no indirect effects of the change in inventory method. Revenues for 2020 total 130,000; operating expenses for 2020 total 30,000. Schmidt is subject to a 21% income tax rate in all years; it pays all income taxes payable in the next quarter. Assume that any deferred tax liability was paid in the subsequent year. Schmidt had 10,000 shares of common stock outstanding during all years; it paid dividends of 1 per share in 2020. At the end of 2020, Schmidt had cash of 15,600, inventory of 34,000, other assets of 76,000, income taxes payable of 4,200, and accounts payable of 3,000. It desires to show financial statements for the current year and previous year in its 2020 annual report. Required: 1. Prepare the journal entry to reflect the change in method at the beginning of 2020. Show supporting calculations. 2. Prepare the 2020 financial statements. Notes to the financial statements are not necessary. Show supporting calculations.
Soon after December 31, 2019, the auditor requested a depreciation schedule for trucks of Jarrett Trucking Company, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2016 to 2019, inclusive. The following data were in the Trucks account as of January 1, 2016: The Accumulated DepreciationTrucks account, previously adjusted to January 1,2016, and duly entered in the ledger, had a balance on that date of 16,460. This amount represented the straight-line depreciation on the four trucks from the respective dates of purchase, based on a 5-year life and no residual value. No debits had been made to this account prior to January 1, 2016. Transactions between January 1,2017, and December 31, 2019, and their record in the ledger were as follows: 1. July 1, 2016: Truck no. 1 was sold for 1,000 cash. The entry was a debit to Cash and a credit to Trucks, 1,000. 2. January 1, 2017: Truck no. 3 was traded for a larger one (no. 5) with a 5-year life. The agreed purchase price was 12,000. Jarrett paid the other company 1,780 cash on the transaction. The entry was a debit to Trucks, 1,780, and a credit to Cash, 1,780. 3. July 1, 2018: Truck no. 4 was damaged in a wreck to such an extent that it was sold as junk for 50 cash. Jarrett received 950 from the insurance company. The entry made by the bookkeeper was a debit to Cash, 1,000, and credits to Miscellaneous Revenue, 50, and Trucks, 950, 4. July 1, 2018: A new truck (no. 6) was acquired for 20,000 cash and debited at that amount to the Trucks account. The truck has a 5-year life. Entries for depreciation had been made at the close of each year as follows: 2016, 8,840; 2017, 5,436; 2018, 4,896; 2019, 4,356. Required: 1. Next Level For each of the 4 years, calculate separately the increase or decrease in earnings arising from the companys errors in determining or entering depreciation or in recording transactions affecting trucks. 2. Prove your work by one compound journal entry as of December 31, 2019; the adjustment of the Trucks account is to reflect the correct balances, assuming that the books have not been closed for 2019.