Question

In the blank to the left of each question, fill in the letter from the following list which best describes the presentation of the item on the financial statements of Helton Corporation for 2018.

W. Change in accounting principle

X. Change in accounting estimate

Y. Correction of an error

Z. None of these choices

_____ 1. Raiders manufacture heavy equipment to customer specifications on a contract basis. On the basis that it is preferable, accounting for these long term contracts was switched from the completed-contract method to the percentage-of-completion method.

________2. As a result of a production breakthrough, Raiders Co. determined that manufacturing equipment previously depreciated over fifteen years should be depreciated over twenty years.

------------3. Raiders changed from LIFO to FIFO to account for its finished goods inventory.

--------4. During 2011, Raiders determined that an insurance premium paid and entirely expensed in 2010 was for the period January 1, 2010, through January 1, 2012.

----------5. In 2018, the company changed its method of depreciating plant assets from the double-declining balance method to the straight-line method.

-------- 6. During 2018, a long-term bond with a carrying value of $4,600,000 was retired at a cost of $4,900,000.

---------- 7. After negotiations with the IRS, income taxes for 2016 were established at $45,900. They were originally estimated to be $38,900.

---------- 8. In 2018, the company incurred interest expense of $39,000 on a 20-year bond issue.

--------- 9. In computing the depreciation in 2016 for equipment, an error was made which overstated income in that year $70,000. The error was discovered in 2018.

---------- 10. In 2018, the company changed its estimate of bad debt expense from 3% to 4%.

Answer 1

Solution:

Explanation:

A change in accounting principle is a change from one generally accepted accounting principle to another. Changes in accounting principle calls for a restrospective change in the financial statements, i.e. they need to be restated and presented. Some examples of change is accounting principle is change in inventory valuation , revenue recognition changes etc.

Whereas a change in accounting estimate is just a change in the the carrying value of assets or liabilities. Examples are changes in depreciation and bad debt allowances

W. Change in accounting principle: 1. Raiders manufacture heavy equipment to customer specifications on a contract basis. On the basis that it is preferable, accounting for these long term contracts was switched from the completed-contract method to the percentage-of-completion method.

X. Change in accounting estimate2. As a result of a production breakthrough, Raiders Co. determined that manufacturing equipment previously depreciated over fifteen years should be depreciated over twenty years.

W. Change in accounting principle-3. Raiders changed from LIFO to FIFO to account for its finished goods inventory.

Y. Correction of an error. - Insurance pertaining to two years is expenses in one year, is an error in accounting and hence needs to be corrected4. During 2011, Raiders determined that an insurance premium paid and entirely expensed in 2010 was for the period January 1, 2010, through January 1, 2012.

X. Change in accounting estimate.5. In 2018, the company changed its method of depreciating plant assets from the double-declining balance method to the straight-line method.

Z. None of these choices - This is a normal accounting procedure followed in the course of business. 6. During 2018, a long-term bond with a carrying value of $4,600,000 was retired at a cost of $4,900,000.

-X. Change in accounting estimate 7. After negotiations with the IRS, income taxes for 2016 were established at $45,900. They were originally estimated to be $38,900.

Z. None of these choices This is a normal accounting procedure followed in the course of business 8. In 2018, the company incurred interest expense of $39,000 on a 20-year bond issue.

Y. Correction of an error. Overstatement of income is an error in accounting and hence needs to be corrected9. In computing the depreciation in 2016 for equipment, an error was made which overstated income in that year $70,000. The error was discovered in 2018.

X. Change in accounting estimate10. In 2018, the company changed its estimate of bad debt expense from 3% to 4%.

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