chapter 23 - UCSB Economics

CHAPTER 22
Accounting Changes and Error Analysis ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) | | |Brief | | |Concepts |
|Topics |Questions |Exercis|Exercises |Problems |for |
| | |es | | |Analysis |
|1. Differences between |4, 6, 7, | | |3 |1, 2, 3, |
|change in principle, change |8, 9, 12, | | | |4 |
|in estimate, change in |13, 15 | | | | |
|entity, errors. | | | | | |
|2. Accounting changes: | | | | | |
| a. Comprehensive. | | | |3, 6, 7 |1, 2, 4, |
| | | | | |5 |
| b. Changes in estimate, |9 |4, 5, 9|2, 3, 4, |1, 2, 4, |1, 2, 3, |
|changes in depreciation | | |6, 7, 8, | |4, 6 |
|methods. | | |9, 10, 11,|6, 7 | |
| | | |12, 16, 17| | |
| c. Changes in accounting |2, 10 |1, 2, |1, 7, 13 | |1, 2 |
|for long-term construction | |10 | | | |
|contracts. | | | | | |
| d. Change from FIFO | | |2, 8, 14 | |3 |
|to average cost. | | | | | |
| e. Change from FIFO to |2, 11 |10 |4, 9 | |1, 2 |
|LIFO. | | | | | |
| f. Change from LIFO. | |3 |2, 3, 5, 8|2, 5 | |
| g. Miscellaneous. |1, 3, 4, |8, 9, | | |1, 5 |
| |5, 8 |10 | | | |
|3. Correction of an error. | | | | | |
| a. Comprehensive. |14, 17, 19|8, 9, |8, 15, 16,|3, 6, 7, |2, 4 |
| | |10 |19, 20, 21|8, 9, 10 | |
| b. Depreciation. |18, 21 |6, 7 |1, 9, 17, |1, 6 | |
| | | |18 | | |
| c. Inventory. |9, 16, 20 |10 |7, 17 |2, 10 |1, 2 |
|*4. Changes between fair | |11, 12 |22, 23 |11, 12 | |
|value and equity methods. | | | | | |
*This material is dealt with in an Appendix to the chapter. ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) | | Brief | | |
|Learning Objectives |Exercises |Exercises |Problems |
|1. Identify the types of accounting | | | |
|changes. | | | |
|2. Describe the accounting for changes | | |1 |
|in accounting principles. | | | |
|3. Understand how to account for |1, 2, 3, |1, 2, 3, 4, 5,|2, 3, 5 |
|retrospective accounting changes. |9, 10 | | |
| | |8, 13, 14 | |
|4. Understand how to account for | |2 | |
|impracticable changes. | | | |
|5. Describe the accounting for changes |4, 5, 9, |6, 7, 8, 9, |1, 2, 3, |
|of estimates. |10 |10, 11, 12 |4, 6 |
|6. Identify changes in a reporting entity.| | | |
|7. Describe the accounting for correction |6, 7, 8, |7, 8, 9, 10, |1, 2, 3, |
|of errors. |9, 10 |15, |6, |
| | |16, 17, 18, |7, 8, 9, |
| | |19, 20, 21 |10 |
|8. Identify economic motives for changing | | | |
|accounting methods. | | | |
|9. Analyze the effect of errors. | |18, 19, 20, 21|6, 7, 8, |
| | | |9, 10 |
|*10. Make the computations and prepare the|11, 12 |22, 23 |11, 12 |
|entries necessary to record a change from | | | |
|or to the equity method of accounting. | | | | ASSIGNMENT CHARACTERISTICS TABLE
| | | |Level of |Time |
|Item | |Description |Difficulty|(minutes)|
| E22-1 | |Change in principle-long-term contracts. |Moderate |10-15 |
| E22-2 | |Change in principle-inventory. |Moderate |10-15 |
| E22-3 | |Accounting change. |Difficult |25-30 |
| E22-4 | |Accounting change. |Difficult |25-30 |
| E22-5 | |Accounting change. |Difficult |30-35 |
| E22-6 | |Accounting changes-depreciation. |Difficult |30-35 |
| E22-7 | |Change in estimate and error; financial |Moderate |25-30 |
| | |statements. | | |
| E22-8 | |Accounting changes and errors. |Simple |5-10 |
| E22-9 | |Error and change in estimate-depreciation. |Simple |15-20 |
| E22-10| |Depreciation changes. |Moderate |20-25 |
| E22-11| |Change in estimate-depreciation. |Simple |10-15 |
| E22-12| |Change in estimate-depreciation. |Simple |20-25 |
| E22-13| |Change in principle-long-term contracts. |Simple |10-15 |
| E22-14| |Various changes in principle-inventory methods. |Moderate |20-35 |
| E22-15| |Error correction entries. |Simple |15-20 |
| E22-16| |Error analysis and correcting entry. |Simple |10-15 |
| E22-17| |Error analysis and correcting entry. |Simple |10-15 |
| E22-18| |Error analysis. |Moderate |25-30 |
| E22-19| |Error analysis; correcting entries. |Simple |20-25 |
| E22-20| |Error analysis. |Moderate |20-25 |
| E22-21| |Error analysis. |Moderate |10-15 |
|*E22-22| |Change from fair value to equity. |Complex |25-30 |
|*E22-23| |Change from equity to fair value. |Moderate |15-20 |
| | | | | |
| P22-1 | |Change in estimate and error correction. |Moderate |30-35 |
| P22-2 | |Comprehensive accounting change and error |Complex |30-40 |
| | |analysis problem. | | |
| P22-3 | |Error corrections and accounting changes. |Complex |30-40 |
| P22-4 | |Accounting changes. |Moderate |40-50 |
| P22-5 | |Change in principle-inventory. |Moderate |30-35 |
| P22-6 | |Accounting changes and error analysis. |Moderate |25-30 |
| P22-7 | |Error corrections. |Moderate |25-30 |
| P22-8 | |Comprehensive error analysis. |Difficult |30-35 |
| P22-9 | |Error analysis. |Moderate |20-25 |
| P22-10| |Error analysis and correcting entries. |Complex |50-60 |
|*P22-11| |Fair value to equity method with goodwill. |Moderate |20-25 |
|*P22-12| |Change from fair value to equity method. |Moderate |20-25 |
| | | | | |
| CA22-1| |Analysis of various accounting changes and |Moderate |25-35 |
| | |errors. | | |
| CA22-2| |Analysis of various accounting changes and |Moderate |20-30 |
| | |errors. | | |
| CA22-3| |Analysis of three accounting changes and errors.|Moderate |30-35 |
| CA22-4| |Analysis of various accounting changes and |Moderate |20-30 |
| | |errors. | | |
| CA22-5| |Change in principle, estimate. |Moderate |20-30 |
| CA22-6| |Change in estimates, ethics. |Moderate |20-30 |
ANSWERS TO QUESTIONS
1. The major reasons are:
(1) Desire to show better profit picture.
(2) Desire to increase cash flows through reduction in income
taxes.
(3) Requirement by Financial Accounting Standards Board to change
accounting methods.
(4) Desire to follow industry practices.
(5) Desire to show a better measure of the company's income. 2. (a) Change in accounting principle; retrospective application is
generally not made because it is impracticable to determine the
effect of the change on prior years. The FIFO inventory amount is
therefore generally the beginning inventory in the current period.
(b) Correction of an error and therefore prior period adjustment;
adjust the beginning balance of retained earnings.
(c) Increase income for litigation settlement.
(d) Change in account