Exam 10: Accounting Changes

Chesapeake Inc.issued a 7-year bond on October 1,2018.The $735,000 par bond pays $51,450 of interest on October 1st each year,its year-end. It is now February 2022.During the audit of the 2021 financial statements,it was discovered that the bond indenture allowed holders to convert the bonds to common shares.The terms of the conversion allow each $1,000 bond to be converted into 50 shares.Additional investigation concluded that the bond would have yielded 8%/annum had it not included the conversion option. Required: Record any adjusting journal entries required to correct Chesapeake's accounts.The books for 2021 have not yet been closed.

Zyler Company is analyzing its accounts receivable for purposes of preparing its financial report for the year-ended December 31,2017.The company uses the aging method to estimate bad debts.During this analysis,Zyler discovered that staff had written off a $55,000 account in 2017 even though the company had received information about the bankruptcy of the client in late 2016. The company has already recorded bad debts expense for 2017,but the general ledger for the year has not yet been closed.The following table provides information relating to Zyler's accounts receivables just prior to the discovery of the $55,000 error: Required: Record any adjusting journal entries necessary to correct the error in Zyler's accounts receivable.

On December 15,2017,The Dutton Company factored $1,600,000 of accounts receivable for proceeds of $1,500,000.The company recorded the transaction as being without recourse,with $100,000 recorded to interest expense.During the preparation of the financial statements dated December 31,2018,staff concluded that the factoring arrangement should have been classified as being with recourse.Additional information about the factoring is as follows: The factor withheld $40,000 for potential uncollectible accounts.Actual uncollectible accounts amounted to $50,000; Dutton paid the additional $10,000 to the factor on August 7,2018 and recorded this amount as "miscellaneous expense." Required: 1.Reproduce the incorrect journal entry that was recorded on December 15,2017,and on August 7,2018. 2.Provide the correct journal entries that should have been recorded on December 15,2017,and on August 7,2018. 3.Record any correcting journal entries necessary to correct the error in Dutton's accounts.

Nicolla Company recorded the purchase of a building in 2017 at a cost of $7,000,000.At the time of purchase,the estimated useful life of the building was 25 years.The company depreciates the building on a straight-line basis and has chosen to record a full year of depreciation in the year of acquisition,and none in the year of disposal. It is now 2027.Nicolla has found it necessary to replace all of the windows in this building at a cost of $1,000,000.Upon further review,management concluded that the windows should have been recorded as a separate component because the manufacturer's specifications indicated that the windows would have a 10-year life expectancy.The estimated value of the windows when the building was purchased was $600,000. Required: Assume that LaSalle committed an error in not componentizing the windows separately from the building.Record the journal entry to record the windows as a separate component,correct all errors and record the replacement of the windows.

Nadire Company has a December 31 year-end.The company uses the aging method to estimate bad debts at year-end.For interim reporting,the company uses the percentage- of-sales method because it is simpler. In March of 2019,the company identified a $109,000 receivable from Woodscreen Inc.as uncollectible.Upon further consideration,staff concluded that the write-off should have occurred in the 2018 fiscal year because the information about the uncollectibility of the account was available at the time.The general ledger accounts for 2018 have already been closed. Required: a.Record the entry to write-off the uncollectible account. b.Record any adjusting journal entries necessary to correct the error in Nadire's accounts receivable.

Evaluate each of the following independent situations to determine the type of accounting change (correction of error,change in accounting policy,or change in estimate)and the appropriate accounting treatment (retrospective or prospective).