Judgment Case 4-9 on page 227

Judgment Case 4-9 on page 227

Judgment Case 4-9Income statement
presentation
Each of the following situations
occurred during 2011 for one of your audit clients:
1. The write-off of inventory due
to obsolescence
2. Discovery that depreciation
expenses were omitted by accident from 2010’s income statement.
3. The useful lives of all
machinery were changed from eight to five years.
4. The depreciation method used
for all equipment was changed from the declining-balance to the straight-line
method.
5. Ten million dollars face value
of bonds payable were repurchased (paid off) prior to maturity resulting in a
material loss of $500,000. The company considers the event unusual and
infrequent.
6. Restructuring costs were
incurred.
7. The Stridewell Company, a
manufacturer of shoes, sold all of its retail outlets. It will continue to
manufacture and sell its shoes to other retailers. A loss was incurred in the
disposition of the retail stores. The retail stores are considered components
of the entity.
8. The inventory costing method
was changed from FIFO to average cost.

Required:
1.For each situation,
identify the appropriate reporting treatment from the list below (consider each
event to be material):
a. As an extraordinary item
b. As an unusual or infrequent
gain or loss.
c. As a prior period adjustment
d. As a change in accounting
principle
e. As a discontinued operation.
f. As a change in accounting
estimate.
g. As a change in accounting
estimate achieved by a change in accounting principle.
2. Indicate whether each
situation would be included in the income statement in continuing operations
(CO) or below continuing operations (BC), or if it would appear as an
adjustment to retained earnings (RE). Use the format shown below to answer
requirements 1 and 2

Situation Treatment(a-g) Financial
Statement Presentation
(CO,
BC, or RE)
1
2
3
4
5
6
7
8
(K)

 

 

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