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1. Discovered that manufacturing equipment was being amortized using a 9% declining balance basis, rather than being amortized over its nine year life according to corporate accounting policy.

1. Discovered that manufacturing equipment was being amortized using a 9% declining balance basis, rather than being amortized over its nine year life according to corporate accounting policy.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Solomon Ltd. is a private corporation. Set out below are various considerations pertaining to Solomon Ltd., and brought to your attention for the year ending December 31, 2019. 1. Discovered that manufacturing equipment was being amortized using a 9% declining balance basis, rather than being amortized over its nine year life according to corporate accounting policy. 2. Change in the percentage of annual warranty cost accrued from 3% of sales to 5% of sales in the year, to reflect the expansion of business operations across Canada. 3. Average cost inventory valuation at the beginning of the year found to be incorrect due to employee theft in previous years. Management determines that it is unable to gather sufficient detail necessary to determine the opening balance. 4. Capitalization and amortization of miscellaneous expenses incurred, related to the commencement of product research and development activities in the year. 5. Change from declining-balance depreciation to straight-line depreciation of all office machinery, in order to conform to industry practice. REQUIRED: Analyze each case above and indicate whether the type of accounting change required is a change in policy, a change in estimate, the correction of an accounting error, or that no accounting change has occurred. Also indicate whether the related accounting treatment for each case above is retrospective with full restatement, prospective, or that no accounting treatment is required.
Transcribed Image Text:Solomon Ltd. is a private corporation. Set out below are various considerations pertaining to Solomon Ltd., and brought to your attention for the year ending December 31, 2019. 1. Discovered that manufacturing equipment was being amortized using a 9% declining balance basis, rather than being amortized over its nine year life according to corporate accounting policy. 2. Change in the percentage of annual warranty cost accrued from 3% of sales to 5% of sales in the year, to reflect the expansion of business operations across Canada. 3. Average cost inventory valuation at the beginning of the year found to be incorrect due to employee theft in previous years. Management determines that it is unable to gather sufficient detail necessary to determine the opening balance. 4. Capitalization and amortization of miscellaneous expenses incurred, related to the commencement of product research and development activities in the year. 5. Change from declining-balance depreciation to straight-line depreciation of all office machinery, in order to conform to industry practice. REQUIRED: Analyze each case above and indicate whether the type of accounting change required is a change in policy, a change in estimate, the correction of an accounting error, or that no accounting change has occurred. Also indicate whether the related accounting treatment for each case above is retrospective with full restatement, prospective, or that no accounting treatment is required.
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