Exam 20: Accounting Changes and Error Corrections

Goosen Company bought a copyright for $90,000 on January 1, 2015, at which time the copyright had an estimated useful life of 15 years. On January 5, 2018, the company determined that the copyright would expire at the end of 2021. How much should Goosen record retrospectively as the effect of change?

Berkshire Inc. uses a periodic inventory system. At the end of 2017, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire has a 30% income tax rate and that this was the only error it made. - What is the effect of the error on Berkshire's 2018 income statement?

Companies should report the cumulative effect of an accounting change in the income statement:

Indicate the nature of each of the situations described below using the following three-letter code. CODE DESCRIPTION CPR: Change in principle reported retrospectively CPP: Change in principle reported prospectively CES: Change in estimate CRE: Change in reporting entity PPA: Prior period adjustment required ____ Change from FIFO inventory costing to LIFO inventory costing. ____ Change from LIFO inventory costing to FIFO inventory costing. ____ Change in the composition of a group of firms reporting on a consolidated basis. ____ Change to the installment method of accounting for receivables. ____ Change in actuarial assumptions for a defined benefit pension plan. ____ Change from sum-of-the-years' digits depreciation to straight-line. ____ Change from expensing extraordinary repairs erroneously recorded as an expense to capitalizing the expenditures. ____ Change in the percentage used to determine warranty expense. ____ Change from reporting postretirement benefits according to the provisions of U.S. GAAP. ____ Change in the residual value of machinery.

Mattson Company receives royalties on a patent it developed several years ago. Royalties are 5% of net sales, to be received on September 30 for sales from January through June and receivable on March 31 for sales from July through December. The patent rights were distributed on July 1, 2017, and Mattson accrued royalty revenue of $60,000 on December 31, 2017, as follows: Mattson received royalties of $65,000 on March 31, 2018, and $80,000 on September 30, 2018. In December, 2018, the patent user indicated to Mattson that sales subject to royalties for the second half of 2018 should be $800,000. Required: (1.) Prepare any journal entries Mattson should record during 2018 related to the royalty revenue. (2.) What changes should be made to retained earnings relative to these royalties?

Prior years' financial statements are restated when the prospective approach is used.

Which of the following statements is true regarding correcting errors in previously issued financial statements prepared in accordance with International Financial Reporting Standards (IFRS)?

Berkshire Inc. uses a periodic inventory system. At the end of 2017, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire has a 30% income tax rate and that this was the only error it made. -What is the effect of the error on Berkshire's December 31,2018 balance sheet?

For 2017, P Co. estimated its two-year equipment warranty costs based on $23 per unit sold in 2017. Experience during 2018 indicated that the estimate should have been based on $25 per unit. The effect of this $2 difference from the estimate is reported:

Describe briefly the approaches of reporting changes in accounting principles.

Which of the following changes is not usually accounted for retrospectively?

Which of the following changes should be accounted for using the retrospective approach?