Hanley Corporation Is Preparing Its Year-End Financial Statements and Needs

Essay

Hanley Corporation is preparing its year-end financial statements and needs your assistance evaluating the following items:
1. Management has decided to switch from FIFO inventory cost flow assumption to weighted average cost formula.
2. It was discovered during the year-end inventory count that the prior year inventory balance reported on the balance sheet incorrectly excluded a lot of inventory received in the warehouse while the year-end count was being performed.
3. Management decided to reduce the remaining useful life of its specialized equipment from 6 years to 4 years to reflect new information that suggests the equipment will be outdated earlier than originally expected.
4. Hanley began bidding on long-term contracts for the first time in the company's history. Management decided to use the percentage of completion method to account for these long-term contracts.
Instructions
a) Analyze each of the four events described above and identify the type of accounting change that has occurred.
b) Indicate whether each event above should be accounted for retrospectively or prospectively.