Question

In: Accounting

For each of the items listed below, identify the proper placement in the income statement or...

For each of the items listed below, identify the proper placement in the income statement or retained earnings statement under U.S. GAAP. (Income from continuing operations; Discontinued operations; Extraordinary items; Accounting principle changes)

1. Change to the FIFO method from LIFO method: effect as of the beginning of the year.

2. Settlement of material litigation.

3. Prohibition of product line by the government.

4. Material gain on the sale of a factory building.

5. Change from double- declining balance to straight- line method of depreciation on the first quater: current years' effect.

6. Operations of segment deemed :held for sale"

7. Loss from a major strike by employees.

8. Revenue from a cancelled product line in woment's clothing.

9. Material flood damage to a building located in the flood plain that flood every two years.

10. Change in the estimated servise life of an asset.

11. Extinguishment of a long term debt (common management strategy for borrowing purposes).

12. Destruction of a warehouse by an earthquake in Wisconsin (a state that rarely has earthquakes)

13. Material write- dowm of inventory.

14. Loss on the sale of subsidiary.

Expert Solution

Answer to Q

1. Change to the FIFO method to LIFO Method : effect as of the beginning of the year

The amount due to change in the method of valuation will be adjusted with retained earning, since the effect arises because of the past transaction. At the beginning of year change will be adjusted with Retained earning, since the adjustment is related to material lying as result of prior period and the profits of prior period has already been adjusted and recorded as part of retained earnings

2. Settlement of Material Litigation

Settlement of material litigation will be shown as extraordinary item since this kind of settlemet doesn't arise on daily basis and as a result of ordinary, day to day business activities

3. Prohibition of product line by government

Prohibition of product line by government will be reported as discontinued operation since the prohibition will result in closure of activity and the same is no more a continued activity/operation of the business

4. Material gain on the sale of buiding

The company is not engaged in real estate and the sale of assets is not an ordinary, day to day activity for the company. The same will be reported as extraordinary income

5. Change from double-declining balance to straight-line method of depreciation on the first quarter : current years' effect

Change in method of depreciation is change in accounting principle. Thus, the same will be shown as change in accounting principle as the effect is for current year

ekkarill92 answered 1 year ago

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