Module 5 Quiz Flashcards
Which disclosure is required for a change from sum-of-the-years-digits to straight-line depreciation method?
Recomputation of current and future years’ depreciation
The estimated life of a building that has been depreciated for 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. There is no salvage value.
Based on this information, how should the accountant record depreciation and adjustments, if any?
Depreciate the remaining book value over the remaining life of the asset
Changes in useful lives of assets are classified as a change in accounting estimate. Changes in accounting estimates are reported prospectively. Therefore, no adjustments are necessary. The company will depreciate the remaining book value over the remaining 10 years (the remaining life of the asset).
On December 31, 2020, Paiva Inc. appropriately changed its inventory valuation method to weighted-average cost from FIFO cost for financial statement purposes. The change will result in a decrease in the inventory account at January 1, 2020. The amount of the change, net of tax is, $1,480,000 (all tax effects should be ignored).
Where should the cumulative effect of this accounting change should be reported by Paiva Inc. in 2020?
Retained earnings statement as a $1,480,000 deduction from the beginning balance
The cumulative effect of this accounting change should be reported by Paiva Inc. in 2020 in the retained earnings statement as a $1,480,000 deduction from the beginning balance.
Which approach does the FASB require when accounting for changes in accounting principle?
Retrospective
At December 31, 2020, Sorrento Inc. estimated bad debts as 3% of the outstanding balance of Accounts Receivable. At December 31, 2020, Sorrento determined that it should increase its estimate to 6.5%.
On which basis is this change handled?
Prospective basis
