Alternate Exercises and Problems 20–1
Chapter 20 Accounting Changes and
Error Corrections
EXERCISES
Exercise 20-1
A change in depreciation method is considered a change in accounting estimate
resulting from a change in accounting principle. In other words, a change in the
depreciation method is similar to changing the economic useful life of a depreciable
asset, and therefore the two events should be reported the same way. Accordingly,
Calculation of SYD depreciation
Adjusting entry (2016 depreciation):
Exercise 20-2
Requirement 1
To record the change:
Requirement 2
Emerson applies the average cost method retrospectively; that is, to all prior
periods as if it always had used that method. In other words, all financial statement
amounts for individual periods that are included for comparison with the current
Alternate Exercises and Problems 20–3
Exercise 20-3
Requirement 1
Accrued liability and expense
Warranty expense (4% x $720,000) ………………………………………………….. 28,800
Requirement 2
Actual expenditures (summary entry)
Estimated warranty liability ($15,000 – 4,600) …………………….. 10,400
20–4 Intermediate Accounting, 8/e
Problem 20-1
a. This is a change in estimate.
No entry is needed to record the change
2016 adjusting entry:
A disclosure note should describe the effect of a change in estimate on income
from continuing operations, net income, and related per-share amounts for the current
period.
b. This is a change in estimate.
No entry is needed to record the change
2016 adjusting entry:
Calculation of annual depreciation after the estimate change:
$4,000,000 Cost
$100,000 Old depreciation ($4,000,000 ÷ 40 years)
x 3 yrs (300,000) Depreciation to date (2013-2015)
PROBLEMS
Problem 20-1 (continued)
c. This is a change in accounting principle that usually is reported prospectively.
No entry is needed to record the change.
Problem 20-1 (continued)
d. This is a change in accounting estimate resulting from a change in accounting
principle.
No entry is needed to record the change
2016 adjusting entry:
Depreciation expense (determined below) ………………… 72,000
A change in depreciation method is considered a change in accounting estimate
resulting from a change in accounting principle. Accordingly, DD reports the change
prospectively; previous financial statements are not revised. Instead, the company
Calculation of SYD depreciation:
Alternate Exercises and Problems 20–7
Problem 20-1 (concluded)
e. This is a change in estimate.
To revise the liability on the basis of the new estimate:
Loss – litigation ………………………………………………………… 5,000,000
20–8 Intermediate Accounting, 8/e
Problem 20-2
a. To correct the error:
Equipment (cost) ……………………………………………………………. 9,000
Accumulated depreciation ([$9,000 ÷ 5] x 2 years)) ………………. 3,600
b. To reverse erroneous entry:
Cash …………………………..……………………………………………… 51,000
c. To correct the error:
Inventory …………………………………………………………………………………………….. 112,000
Retained earnings ……………………………………………………………………….. 112,000
d. To correct the error:
Retained earnings ([$10 x 4,000 shares] – $4,000) …………………. 36,000
Paid-in capital – excess of par …………………………………… 36,000