Acct 557 week 5 discussion workout room application

ACCT 557 Intermediate Accounting III

(DeVry Keller – Winter 2016)

Workout Room Application (graded)

This week, we will cover accounting changes and errors. (See the Assignments area to get a jump on some of the problems we’ll be concentrating on in this thread.) Before we start doing problems together, what is the difference in retrospective or prospective for accounting changes? Let’s start with BE 21-2 and BE 20-6 for practice.


As in the previous weeks, please use this Workout room to increase learning by answering any question at the end of the chapter (i.e. Brief Exercises, Exercises, Problems, Cases, etc.).  Once someone has already answered one question, choose another and make sure to label your title accordingly (e.g. BE 22-4) so the class can easily see what you worked on. 



 Roundtree Manufacturing Co. is preparing its year-end financial statements and is considering the accounting for the following items.

1. The vice president of sales had indicated that one product line has lost its customer appeal and will be phased out over the next 3 years. Therefore, a decision has been made to lower the estimated lives on related production equipment from the remaining 5 years to 3 years.

2. The Hightone Building was converted from a sales office to offices for the Accounting Department at the beginning of this year. Therefore, the expense related to this building will now appear as an administrative expense rather than a selling expense on the current year’s income statement.

3. Estimating the lives of new products in the Leisure Products Division has become very difficult because of the highly competitive conditions in this market. Therefore, the practice of deferring and amortizing preproduction costs has been abandoned in favor of expensing such costs as they are incurred.

Identify and explain whether each of the above items is a change in principle, a change in estimate, or an error.

E22-4 (Accounting Change) Gordon Company started operations on January 1, 2009, and has used the FIFO method of inventory valuation since its inception. In 2015, it decides to switch to the average-cost method. You are provided with the following information.


                             Net Income 

            Under FIFO     Under Average-Cost                                     Retained Earnings (Ending Balance)

                                                                                                                   Under FIFO

2009      100,000                     90,000                                                             100,000

2010      70,000                       65,000                                                             160,000

2011      90,000                       80,000                                                             235,000

2012      120,000                     130,000                                                           340,000

2013      300,000                     290,000                                                           590,000

2014      305,000                     310,000                                                           780,000





(a)              What is the beginning retained earnings balance at January 1, 2011, if Gordon prepares comparative financial statements starting in 2011?

(a)              What is the beginning retained earnings balance at January 1, 2014, if Gordon prepares comparative financial statements starting in 2014?

(c) What is the beginning retained earnings balance at January 1, 2015, if Gordon prepares single- period financial statements for 2015?

(d) What is the net income reported by Gordon in the 2014 income statement if it prepares comparative financial statements starting with 2012?