The document discusses changes in accounting policies and estimates for depreciation made by two companies, Cherokee Construction and Frederick Industries, in 2019.
For Cherokee Construction, it changed its method of accounting for long-term contracts from cost-recovery to percentage-of-completion. This resulted in a $170,000 difference in pretax income between the two methods in 2018. Journal entries are required to adjust retained earnings and deferred tax liability for the change.
For Frederick Industries, it changed its depreciation method for plant assets from double-declining balance to straight-line. Journal entries are needed to reflect this change and the income statements for 2018-2019 must be prepared.
The document discusses changes in accounting policies and estimates for depreciation made by two companies, Cherokee Construction and Frederick Industries, in 2019.
For Cherokee Construction, it changed its method of accounting for long-term contracts from cost-recovery to percentage-of-completion. This resulted in a $170,000 difference in pretax income between the two methods in 2018. Journal entries are required to adjust retained earnings and deferred tax liability for the change.
For Frederick Industries, it changed its depreciation method for plant assets from double-declining balance to straight-line. Journal entries are needed to reflect this change and the income statements for 2018-2019 must be prepared.
The document discusses changes in accounting policies and estimates for depreciation made by two companies, Cherokee Construction and Frederick Industries, in 2019.
For Cherokee Construction, it changed its method of accounting for long-term contracts from cost-recovery to percentage-of-completion. This resulted in a $170,000 difference in pretax income between the two methods in 2018. Journal entries are required to adjust retained earnings and deferred tax liability for the change.
For Frederick Industries, it changed its depreciation method for plant assets from double-declining balance to straight-line. Journal entries are needed to reflect this change and the income statements for 2018-2019 must be prepared.
The document discusses changes in accounting policies and estimates for depreciation made by two companies, Cherokee Construction and Frederick Industries, in 2019.
For Cherokee Construction, it changed its method of accounting for long-term contracts from cost-recovery to percentage-of-completion. This resulted in a $170,000 difference in pretax income between the two methods in 2018. Journal entries are required to adjust retained earnings and deferred tax liability for the change.
For Frederick Industries, it changed its depreciation method for plant assets from double-declining balance to straight-line. Journal entries are needed to reflect this change and the income statements for 2018-2019 must be prepared.
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E22.
1 (LO1) (Change in Policy—Long-Term Contracts) Cherokee Construction
Company changed from the cost-recovery to the percentage-of-completion method of accounting for long-term construction contracts during 2019. For tax purposes, the company employs the cost-recovery method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows. Pretax Income from Percentage-of-Completion Cost Recovery Difference 2018 $780,000 $610,000 $170,000 2019 $700,000 $480,000 $220,000 Instructions a. Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 2019? b. What entry(ies) is necessary to adjust the accounting records for the change in accounting policy?
a) Net income to be reported in 2010
Income before tax $ 700,000 Income tax(700,000 X 35%) $ (245,000) Net income $ 455,000
E22.12 (LO2) (Change in Estimate—Depreciation) Frederick Industries changed
from the double-declining-balance to the straight-line method in 2019 on all its plant assets. There was no change in the assets' residual values or useful lives. Plant assets, acquired on January 2, 2016, had an original cost of €2,400,000, with a €100,000 residual value and an 8-year estimated useful life. Income before depreciation expense was €370,000 in 2018 and €300,000 in 2019. Instructions a. Prepare the journal entry(ies) to reflect the change in depreciation method in 2019. b. Starting with income before depreciation expense, prepare the remaining portion of the income statement for 2018 and 2019.
a) cost of plant assets $ 2,400,000
(-) depreciation to prior 2016(2400,000 X25%) $ 600,000 2017(1800,000 X25%) $ 450,000 2018(1350,000 X25%) $ 337,500 $ (1,387,500) Book value at Jan $ 1,012,500
2019 2018 b) Income before depreciation expense $ 300,000.00 $ 370,000.00 depreciation expense $ 182,500.00 $ 337,500.00 net income $ 117,500.00 $ 32,500.00
P22.1 (LO2, 3) (Change in Estimate and Error Correction) Holtzman Company
is in the process of preparing its financial statements for 2019. Assume that no entries for depreciation have been recorded in 2019. The following information related to depreciation of fixed assets is provided to you. 1. Holtzman purchased equipment on January 2, 2016, for $85,000. At that time, the equipment had an estimated useful life of 10 years with a $5,000 residual value. The equipment is depreciated on a straight-line basis. On January 2, 2019, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3,000 residual value. 2. During 2019, Holtzman changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $300,000. It had a useful life of 10 years and a residual value of $30,000. The following computations present depreciation on both bases for 2017 and 2018. 2018 2017 Straight-line $ 27,000 $ 27,000 Declining-balance $ 48,000 $ 60,000 3. Holtzman purchased a machine on July 1, 2017, at a cost of $120,000. The machine has a residual value of $16,000 and a useful life of 8 years. Holtzman's bookkeeper recorded straight-line depreciation in 2017 and 2018 but failed to consider the residual value. Instructions a. Prepare the journal entries to record depreciation expense for 2019 and correct any errors made to date related to the information provided. b. Show comparative net income for 2018 and 2019. Income before depreciation expense was $300,000 in 2019, and was $310,000 in 2018. (Ignore taxes.) a) 1) Cost of equipment $ 85,000 (-) residual value $ 5,000 Depreciation cost $ 80,000
Depreciation 2010 cost of equipment $ 85,000 (-) depreciation(2007 till 2009) $ 24,000 Book value , Jan 1 2010 $ 61,000 (-) residual value $ 3,000 Depreciable cost $ 58,000
depreciation 2010 = 58000/4
=$14 500
Depreciation expense $ 14,500
Accumulated depreciation- equipment $ 14,500
2) Cost of building $ 300,000
(-) depreciation 2008 $ 60,000 2009 $ 48,000 Book value Jan 1, 2010 $ 192,000 (-) residual value $ 30,000 Depreciable cost $ 162,000
b) HOLTZMAN COMPANY Comparative Income Statements For Year 2010 & 2009 $ 2,010 $ 2,009 Income before expense $ 300,000 $ 310,000 Depreciation expense $ 47,750 $ 69,000 Net income $ 252,250 $ 241,000
