Question

In: Accounting

Woo Ltd. recently conducted an extensive review of its accounting and reporting policies. The following accounting...

Woo Ltd. recently conducted an extensive review of its accounting and reporting policies. The following accounting changes are an outgrowth of that review:

Woo acquired a machine at a cost of $400,000 in 2016. The machine has been depreciated on a straight-line basis with no residual value since it was acquired. During 2019, it was decided that the benefits from the machine would be consumed over a total of 13 years rather than the 20-year useful life now being used to depreciate its cost.

At the beginning of 2019, Woo changed its method of valuing inventory from the FIFO cost method to the weighted-average cost method. At December 31, 2018 and 2017, Woo’s inventories were as follow:

	2018	2017
On a FIFO cost basis	$560,000	$540,000
On a weighted-average cost basis	$500,000	$490,000

Woo‘s income tax rate is 20%.

Woo reports net income for 2019 and 2018 for the following amounts:

	2019	2018
Net income	$840,000	$900,000

The retained earnings of Woo as at December 31, 2018 and 2017 before adjusting the effect from the changes in inventory valuation method are as follow:

	2018	2017
Retain earnings	$3,200,000	$2,800,000

Dividends declared during 2019 and 2018 were $100,000 and $500,000, respectively.

Required:

Prepare the journal entries needed in 2019 related to each change.

Prepare the statements of changes in equity (in part) for the year ended at 31 December 2019 after the adjustments (including comparative figure for 2018) in accordance with HKAS 8.

Expert Solution

In the Books of WOO LTD

Journal Entries for the Year 2019

Entries for Fixed Asset for year 2019

1)Depreciation Dr $30769

To Accumulated Depreciation Cr $30769

2) Entry for revision in Depreciation for earlier years(2016 to 2018)

Depreciation Dr $32307

To Accumaulated depreciation Cr $30307

Entries for Inventory( change in method of valuation from FIFO to Weighted Average)

Profit & Loss A/C Dr 70000

Inventory Cr 70000

statements of changes in equity (in part) for the year ended at 31 December 2019
	Yr 2019
Net Income Statement	$840,000
Less Depn for 2019	30769
Retained Earnings	$809,231
Less Prior Year adjustement for depreciation and Inventory Valuation	$102,307
	$706,924

Retained Earnings as on 2018	$3,200,000
Add: Retained for the period ended 2019	$706,924
Retained Earnings as on 2019	$3,906,924

Workings
	Life of Asset orignally cosidered as 20 Years	Life of Asset revised to 13 Years	Difference
Asset acquired in Year 2016	400000	400000
Depn for 2016	20000	30769	-10769
Written Down Value	380000	369231
Depn for 2017	20000	30769	-10769
Written Down Value	360000	338462
Depn for 2018	20000	30769	-10769
	340000	307693



Revision in Valuation of Inventory
	FIFO	Wt Avg	Charged to P&L
2018	560000	500000	60000
2017	500000	490000	10000

ekkarill92 answered 11 months ago

Question 3: (20 Marks) Woo Ltd. recently conducted an extensive review of its accounting and reporting...

Question 3: Woo Ltd. recently conducted an extensive review of its accounting and reporting policies. The following accounting changes are an outgrowth of that review: 1. Woo acquired a machine at a cost of $400,000 in 2016. The machine has been depreciated on a straight-line basis with no residual value since it was acquired. During 2019, it was decided that the benefits from the machine would be consumed over a total of 13 years rather than the 20-year useful life...

Alomar Co., a consolidated enterprise, conducted an impairment review for each of its reporting units. In...

Alomar Co., a consolidated enterprise, conducted an impairment review for each of its reporting units. In its qualitative assessment, one particular reporting unit, Sellers, emerged as a candidate for possible goodwill impairment. Sellers had recognized net assets with carrying amounts totaling $1,101, including goodwill of $680. Seller’s reporting unit fair value is assessed at $1,055 and includes two internally developed unrecognized intangible assets (a patent and a customer list with fair values of $189 and $105, respectively). The following table...

Gilliam Corporation recently hired a new accountant with extensive experience in accounting for partnerships. Because of...

Gilliam Corporation recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review his textbooks on the topic of corporation accounting. During the first month, the accountant made the following entries for the corporation’s capital stock. May 2 Cash 201,600 Capital Stock 201,600 (Issued 14,400 shares of $11 par value common stock at $14...

Sheridan Inc. recently hired a new accountant with extensive experience in accounting for partnerships. Because of...

Sheridan Inc. recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, he made the following entries for the corporation’s capital stock. Date Account Titles and Explanation Debit Credit May 2 Cash 208,000 Capital Stock 208,000 (Issued 13,000 shares of $5 par value common stock at $16 per share) May 10 Cash...

Accounting treatment for PPE Twister Ltd recently acquired a second-hand machine for installation in its factory....

Accounting treatment for PPE Twister Ltd recently acquired a second-hand machine for installation in its factory. The machine was acquired from Robert Ltd, with Twister Ltd giving a block of land plus $5 000 cash in exchange for the machine. The land had been acquired by Twister Ltd for $200 000 three years ago, but was considered to have a fair value of $300 000 at the date of exchange. The machine had a carrying amount in the records of...

Exercise 15-9 Pistons Inc. recently hired a new accountant with extensive experience in accounting for partnerships....

Exercise 15-9 Pistons Inc. recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, he made the following entries for the corporation’s capital stock. Date Account Titles and Explanation Debit Credit May 2 Cash 228,650 Capital Stock 228,650 (Issued 13,450 shares of $5 par value common stock at...

Accounting policies At a meeting on 16 June 2019, the directors of Swan Ltd decided to...

Accounting policies At a meeting on 16 June 2019, the directors of Swan Ltd decided to change the company’s accounting policy in regard to research and development expenditure. In previous years, research and development expenditure had been capitalized and amortized over 3 years. In line with this policy, $75 000 was capitalized on 1 January 2018. The new policy is to write off all research and development to expense when incurred. During the year ended 30 June 2019, the company...

Explain the following accounting policies Accounting conventions followed Valuation of fixed assets Depreciation and inventory policies...

Explain the following accounting policies Accounting conventions followed Valuation of fixed assets Depreciation and inventory policies Valuation of investments Translation of foreign currency items Costs incurred on research and development Historical or current cost accounting Treatment of leases Treatment of goodwill Recognition of profits on long-term contracts Treatment of contingent liabilities

Question 15 Glados Ltd recently conducted a bonus issue of shares for their existing shareholders. What...

Question 15 Glados Ltd recently conducted a bonus issue of shares for their existing shareholders. What would the most likely effect of this have been on their accounts? Increased total equity and increased total assets Increased total equity only Increased total assets only No effect on the total equity or total assets 16 If shares are described as 6% cumulative preference shares, what does this mean? Holders of these shares are entitled to both a 6% annual dividend and whatever...

The Federal Reserve Board of Governors recently changed the reporting of its stance on monetary policy...

The Federal Reserve Board of Governors recently changed the reporting of its stance on monetary policy from what they termed a "policy bias" to a "balance of risks". A researcher wished to see whether there had been a change in the way financial analysts were interpreting the change in reporting. When the "policy bias" reporting method was used, it was known that only 30% of the Board's decisions were correctly anticipated by analysts in their reports. For the "balance of...