(Change in Principle, Estimate) As a certified public accountant, you have been contacted by Joe Davison, CEO of Sports-Pro Athletics, Inc., a manufacturer of a variety of athletic equipment. He has asked you how to account for the following changes.

1. Sports-Pro appropriately changed its depreciation method for its machinery from the double-declining-balance method to the units-of-production method effective January 1, 2017.

2. Effective January 1, 2017, Sports-Pro appropriately changed the salvage values used in computing depreciation for its office equipment.

3. On December 31, 2017, Sports-Pro appropriately changed the specific subsidiaries constituting the group of companies for which consolidated financial statements are presented.

Instructions

Write a 1–1.5 page letter to Joe Davison explaining how each of the above changes should be presented in the December 31, 2017, financial statements.

The financial statements are defined as the written records which show the financial health and the financial position of the business

You contacted me about various accounting changes made at Sports-Pro Athletics Inc in the year 2014 and this letter will provide you with the details about how should account for each change.

The change in depreciation method from one method to another will be considered as the change in the accounting estimate which is affected by the change in accounting principle. Any change in the estimate will employ the prospective approach.

The change in salvage values for the office equipment will be considered as the change in estimate. This will not affect the previous financial statement and is also accounted for prospectively.

And the change in specific subsidiaries will result in a change in reporting entity which should be reported by restating the financial statements of the business.

The changes made should be accounted for as mentioned.

Sincerely,