Extra Credit Questions of ACCT800 Exam III (10 points) (Due 12/15)
1. (2 Points) On December 31, 20X8, before the books were closed, the management and
accountants of Hopkins Inc. made the following determinations about one depreciable
assets:
Depreciable asset A was purchased on January 1, 20X6. It originally costs $480,000
and, for depreciation purposes, the double-declining-balance method was originally
chosen. The asset was originally expected to be useful for 4 years and have a zero
salvage value. On January1, 20X8, decision was made to change the depreciation
method from the double-declining-balance method to the straight-line method, and
the estimates relating to useful life and salvage value remained unchanged.
Required:
(1) Under SFAS 154 (ASC 250), the proper accounting treatment for depreciation method
change is the prospective approach. Applying the prospective approach for this
change in 2008 (i.e., prepare the journal entry for the depreciation expense of 2008).
(2) Describe other accounting procedures needed under this approach including the
appropriate footnote disclosures.
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2. (3 points) United Inc. changed from LIFO to FIFO inventory costing method on January 1,
2008. Inventory values at the end of each year since the inception of the company are as
follows:
Year
2006
2007
LIFO
$200,000
300,000
FIFO
$220,000
350,000
Required:
(1) Under SFAS 154 (ASC 250), the proper accounting treatment for voluntary
accounting method changes is the retrospective approach. Using this approach,
prepare the journal entry to report this accounting change, assuming a 30% income
tax rate.
(2) Describe other accounting procedures needed under the retrospective approach.
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(2 points) Oscar Company is in the process of adjusting and correcting its books at the end of
20X8. In reviewing its records, the following information is compiled.
3.
Oscar has failed to accrue salary payable at the end of each of the last three years, as
follows:
December 31, 20X6 $6,000
December 31, 20X7 $3,000
December 31, 20X8 $7,000
Required:
Ignore income tax effect, prepare the journal entries necessary at December 31, 20X8 to record
the above correction. The books of 20X8 are still open.
Essay Question (3 Points)
State the advantages of the retrospective approach over the current period approach in
accounting for voluntary accounting method changes and the possible reason(s) for the FASB to
eliminate the current period approach in SFAS 154 (ASC 250).
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