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ACC Extra Credit Questions of Exam III

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Question;Extra Credit Questions of Exam III (10 points)1. The management and accountants of Hopkins Inc. made the following decision about onedepreciable asset:Asset A was purchased on January 1, 2008 for $480,000. For depreciation purposes, the doubledeclining-balance method was originally chosen. The asset was expected to be useful for 5 yearswith no salvage value. On January1, 2010, the decision was made to change the depreciation methodfrom the double-declining-balance to the straight-line method while the estimates of useful life andsalvage value remained unchanged.Required:(1) Based on SFAS 154 (ASC 250), the proper accounting treatment for thedepreciation method change and the change in accounting estimate is theprospective approach. Prepare the journal entry necessary to record thedepreciation expense for asset A in 2010.(2) Describe other accounting procedures needed to apply the prospective approachfor change in accounting estimate.2. United Inc. changed from LIFO to FIFO inventory costing method on January 1, 2011. Inventoryvalues at the end of each year since the inception of the company are as follow:Year LIFO FIFO Difference2009 $200,000 $220,000 $20,0002010 300,000 350,000 $50,000Required:(1) Based on SFAS 154 (ASC250), the proper accounting treatment for voluntaryaccounting method change is the retrospective approach. Prepare the journal entrynecessary to record this inventory cost flow assumption change in 2011. Theincome tax rate is 30%.(2) Describe other accounting procedures needed to apply the retrospectiveapproach for change in accounting principle.3. Oscar Company is in the process of adjusting and correcting its books at the end of 2011. Inreviewing its records, the following information is compiled.Oscar has failed to accrue salary payable at the end of each of the last three years, as follows:December 31, 2009 $6,000December 31, 2010 $5,000December 31, 2011 $7,000Required:Ignore all tax effects. Prepare the journal entry necessary at December 31, 2011 torecord the above correction. The books of 2011 are still open.

 

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