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Chapter 22: 22-3IFRS (page 1328)
The comparative financial statement can be compared, and the difference between GAAP and IFRS makes it challenging for U.S. companies to adopt IFRS
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At January 1, 2017, Beidler Company reported retained earnings of \(2,000,000. In 2017, Beidler discovered that 2016 depreciation expense was understated by \)400,000. In 2017, net income was \(900,000 and dividends declared were \)250,000. The tax rate is 40%. Prepare a 2017 retained earnings statement for Beidler Company
Question: At the beginning of 2017, Wertz Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2017, pretax income under the two methods was as follows: percentage-of-completion \(120,000, and completed-contract \)80,000. The tax rate is 35%. Prepare Wertz’s 2017 journal entry to record the change in accounting principles.
(Accounting for Accounting Changes and Errors) Listed below are various types of accounting changes and errors.
______ 1. Change in a plant asset’s salvage value.
______ 2. Change due to overstatement of inventory.
______ 3. Change from sum-of-the-years’-digits to straight-line method of depreciation.
______ 4. Change from presenting unconsolidated to consolidated financial statements.
______ 5. Change from LIFO to FIFO inventory method.
______ 6. Change in the rate used to compute warranty costs.
______ 7. Change from an unacceptable accounting principle to an acceptable accounting principle.
______ 8. Change in a patent’s amortization period.
______ 9. Change from completed-contract to percentage-of-completion method on construction contracts.
______ 10. Change from FIFO to average-cost inventory method.
Instructions For each change or error, indicate how it would be accounted for using the following code letters:
(a) Accounted for prospectively.
(b) Accounted for retrospectively.
(c) Neither of the above.
(Error Analysis) When the records of Debra Hanson Corporation were reviewed at the close of 2018, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2017 and 2018.
2017 2018 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect
1. Failure to record amortization of patent in 2018.
2. Failure to record the correct amount of ending 2017 inventory. The amount was understated because of an error in calculation.
3. Failure to record merchandise purchased in 2017. Merchandise was also omitted from ending inventory in 2017 but was not yet sold.
4. Failure to record accrued interest on notes payable in 2017; that amount was recorded when paid in 2018.
5. Failure to reflect supplies on hand on the balance sheet at end of 2017.
You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following information.
1. Roberts Company commenced business on April 1, 2015, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes.
Year Ended March 31 Income Before Taxes
2016 \( 71,600
2017 111,400
2018 103,580
2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to:
2016 \)6,500
2017 none
2018 5,590
Sales price was determined by adding 25% to cost. Assume that the consigned machines are sold the following year.
3. On March 30, 2017, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered until April 5, 2017, when cash was received for \(6,100. The machines were not included in the inventory at March 31, 2017. (Title passed on March 30, 2017.)
4. All machines are sold subject to a 5-year warranty. It is estimated that the expense ultimately to be incurred in connection with the warranty will amount to ½ of 1% of sales. The company has charged an expense account for warranty costs incurred. Sales per books and warranty costs were as follows.
Year Ended March 31 Sales Warranty Expense for Sales Made in
2016 2017 2018 Total
2016 \) 940,000 \(760 \) 760
2017 1,010,000 360 \(1,310 1,670
2018 1,795,000 320 1,620 \)1,910 3,850
Bad Debts Incurred on Sales Made in Bad Debt Expense 2016 2017 2018 Total Based on 1% of Receivables 2016 \(750 \) 750 \(2,334 2017 800 \) 520 1,320 2,557 2018 350 1,800 \(1,700 3,850 4,458
5. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that losses will approximate 1% of receivables. Bad debts written off were:
6. The bank deducts 6% on all contracts financed. Of this amount, ½% is placed in a reserve to the credit of Roberts Company that is refunded to Roberts as finance contracts are paid in full. (Thus, Roberts should have a receivable for these payments and should record revenue when the net balance is remitted each year.) The reserve established by the bank has not been reflected in the books of Roberts. The excess of credits over debits (net increase) to the reserve account with Roberts on the books of the bank for each fiscal year were as follows. 2016 \) 3,000 2017 3,900 2018 5,100 \(12,000
7. Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were as follows. 2016 \)1,400 2017 900 2018 1,120
8. A review of the corporate minutes reveals the manager is entitled to a bonus of 1% of the income before deducting income taxes and the bonus. The bonuses have never been recorded or paid.
Instructions
(a) Present a schedule showing the revised income before income taxes for each of the years ended March 31, 2016, 2017, and 2018. (Make computations to the nearest whole dollar.)
(b) Prepare the journal entry or entries you would give the bookkeeper to correct the books. Assume the books have not yet been closed for the fiscal year ended March 31, 2018. Disregard correction of income taxes.
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