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Chapter 22: Question 8 (page 1306)

Indicate how the following items are recorded in the accounting records in the current year of Coronet Co. (a) Impairment of goodwill. (b) A change in depreciating plant assets from accelerated to the straight-line method. (c) Large write-off of inventories because of obsolescence. (d) Change from the cash basis to accrual basis of accounting. (e) Change from LIFO to FIFO method for inventory valuation purposes. (f) Change in the estimate of service lives for plant assets

Short Answer

Expert verified

Goodwill is an intangible asset, and the items are recorded in the manner described in step 2.

Step by step solution

01

Definition of goodwill

Goodwill is defined as the intangible asset generated when another company buys one company.

02

Effect of the items

  1. It will be charged to expense- possibly separately disclosed.
  2. There will be a change in estimates by a change in accounting principle- currently and prospectively.
  3. It is a charge to expense- possibly separately disclosed.
  4. Correction of an error will be reported as the prior period adjustments.
  5. Change in accounting principle- retrospective application to all affected prior period financial information
  6. It is a change in accounting estimate -currently and prospectively.

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Most popular questions from this chapter

State how each of the following items is reflected in the financial statements. (a) Change from FIFO to LIFO method for inventory valuation purposes. (b) Charge for failure to record depreciation in a previous period. (c) Litigation won in current year, related to prior period. (d) Change in the realizability of certain receivables. (e) Write-off of receivables. (f) Change from the percentage-of-completion to the completed-contract method for reporting net income.

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As part of the year-end accounting process and review of operating policies, Cullen Co. is considering a change in the accounting for its equipment from the straight-line method to an accelerated method. Your supervisor wonders how the company will report this change in accounting. It has been a few years since he took intermediate accounting, and he cannot remember whether this change would be treated in a retrospective or prospective manner. Your supervisor wants you to research the authoritative guidance on a change in accounting policy related to depreciation methods.

Instructions

(a) What are the accounting and reporting guidelines for a change in accounting policy related to depreciation methods?

(b) What are the conditions that justify a change in depreciation method, as contemplated by Cullen Co.?

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