Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 20, Problem 20.4DMP
Analysis Case 20–4
Change in inventory methods; concepts
• LO20–2, LO20–3
Generally accepted accounting principles should be applied consistently from period to period. However, changes within a company, as well as changes in the external economic environment, may force a company to change an accounting method. The specific reporting requirements when a company changes from one generally accepted inventory method to another depend on the methods involved.
Required:
Explain the accounting treatment for a change in inventory method (a) not involving LIFO, (b) from the LIFO method, and (c) to the LIFO method. Explain the logic underlying those treatments. Also, describe how disclosure requirements are designed to address the departure from consistency and comparability of changes in accounting principle.
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Question 6
Indicate with the appropriate letter the nature of each situation described below:
Туре оf Chang
e
PR Change in policy reported retrospectively
P Change in policy reported prospectlively
E
Change in estimate
EC Emror comection
Not an accounting change
1. Settling a lawsuit for less than the amount accrued previousily as a provision.
2. Change from FIFO inventory costing to the weighted average inventory costing. However, the oumulative effect of the change cannot be determined.
3. Change by a retail store from recognizing refunds on an actual claims basis to the allowance method.
4. A shift of certain manufacturing overhead costs to inventory that previously were expensed as incurred to more acourately measure cost of goods sold. (Either method is acceptable.)
5. Change from cost model to fair value model for investment property
Question no 6
Errors occasionally occur when physically counting inventory items on hand. Identify the financial
statement effects of an overstatement of the ending inventory in the current period. If the error is not
corrected, how does it affect the financial statements for the following year? How is it possible for a
company to suffer a net loss for a given year, yet produce a positive net cash flow from operating
activities?
Question 63
Modified True or False
T means Correct and F means Wrong
I. The longer its customers normally hold inventory, the longer the credit period supplier firms normally offer. Still, suppliers have some flexibility in the credit terms they offer. If a supplier lengthens the credit period offered, this will shorten the customer's cash conversion cycle but lengthen the supplier firm's own CCC.
II. The cash conversion cycle (CCC) combines three factors: The inventory conversion period, the receivables collection period, and the payables deferral period, and its purpose is to show how long a firm must finance its working capital. Other things held constant, the shorter the CCC, the more effective the firm's working capital management.
III. The target cash balance is typically (and logically) set so that it does not need to be adjusted for either seasonal patterns or unanticipated random fluctuations.
IV. A firm's peak borrowing needs will probably be overstated if it bases its…
Chapter 20 Solutions
Intermediate Accounting, 10 Ed
Ch. 20 - Prob. 20.1QCh. 20 - There are three basic accounting approaches to...Ch. 20 - Prob. 20.3QCh. 20 - Lynch Corporation changes from the...Ch. 20 - Sugarbaker Designs Inc. changed from the FIFO...Ch. 20 - Most changes in accounting principles are recorded...Ch. 20 - Southeast Steel, Inc., changed from the FIFO...Ch. 20 - Prob. 20.8QCh. 20 - Its not easy sometimes to distinguish between a...Ch. 20 - For financial reporting, a reporting entity can be...
Ch. 20 - Prob. 20.11QCh. 20 - Describe the process of correcting an error when...Ch. 20 - Prob. 20.13QCh. 20 - If it is discovered that an extraordinary repair...Ch. 20 - Prob. 20.15QCh. 20 - Prob. 20.5ECh. 20 - FASB codification research LO202 Access the FASB...Ch. 20 - Classifying accounting changes LO201 through...Ch. 20 - Classifying accounting changes and errors LO201...Ch. 20 - Prob. 20.3DMPCh. 20 - Analysis Case 204 Change in inventory methods;...Ch. 20 - Prob. 20.11DMP
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