Accounting 381 – Summer I 2017
Project #2
Intermediate Accounting Research
Due: Friday, July 20, 2018 at 5:00 PM
Groups: You are welcome to work in groups if you would like. Please do not create groups of more than 5 students (submit 1 paper per group). You may select your own groups. Please contact me if you are having difficulty finding a group.
Background
In an effort to simplify research, the Financial Accounting Standards Board (FASB) organized and consolidated authoritative generally accepted accounting principles (GAAP) for nongovernmental entities into the FASB Accounting Standards Codification (“ASC” or the “Codification”). This process, which took over 5 years to complete, changed a standards-based model (with thousands of individual standards) to a topically based model (with roughly 90 topics). The intent of the Codification was to reduce the amount of time and effort required to solve an accounting research issue, mitigate the risk of noncompliance through improved usability of the literature, and provide accurate information with real-time updates as Accounting Standards Updates are released. (FASB ASC, About the Codification)
Assignment – Part 1
To introduce Accounting 381 students to the Codification, you will be required on an individual basis to read Chapter 1 of Shelby Collins Guide to Intermediate Accounting Research. As a group, you will document your answers to the following questions from this text:
Chapter 1 – Review Questions:
#1-11, 13, 15-17, and 19-23
Chapter 1 – Exercises:
#1, 3, 4, 6a, 9-11, 25 and 26d
Assignment – Part 2
You are a newly certified public accountant recently hired by Thompson Certified Public Accountants, LLP. A client, Avery Corporation, who after the year-end 12/31/2017 but before their books were closed, contacted the firm regarding transactions involving accounting changes and errors. This client is an SEC registrant and needs guidance on the application of the correct FASB pronouncements. Your direct supervisor wants you to research the authoritative guidance related to these situations and determine the proper course of action before meeting with the client.
Avery Corporation made the following determinations about three depreciable assets:
- Depreciable asset M was purchased on January 1, 2015. The original cost was $114,000 and this amount was entirely expensed in 2015. This particular asset has an 8-year useful life and no salvage value. The straight-line method should have been used for depreciation purposes.
- Depreciable asset N was purchased January 1, 2016. It originally cost $540,000 and, for depreciation purposes, the sum-of-the-years’ digit method was originally chosen. The asset was originally expected to be useful for 10 years and have a zero salvage value. In 2017, the decision was made to change the depreciation method from sum-of-the-years’ digits to straight-line to better match costs. Note: The estimates relating to useful life and salvage value remained unchanged.
- Depreciable asset O was purchased January 1, 2013. It originally cost $160,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 8 years and have a zero salvage value. In 2017, the decision was made to extend the total life of this asset to 10 years and to estimate the salvage value at $5,000.
- Indicate if the situation is a change in accounting principle, a change in accounting estimate or an error in the financial statement. What is the proper accounting treatment (retrospective, restatement, prospective) for each of these assets? You must support your conclusions with cites to the applicable guidance listed in the FASB Codification. Ignore tax implications and assume all errors are material to the client and require adjustment.
- What journal entries would be appropriate at 12/31/2017 for each of these assets? Ignore tax implications.
FASB Codification Access:
You may access the FASB Codification database through the American Accounting Association by logging in at http://www2.aaahq.org/ascLogin.cfm using the following:
Student Access:
Username – AAA51686
Password – 5x7kSCY
Kieso Textbook Guidance
Chapter 4 – Income Statement and Related Information
Chapter 11- Depreciation Methods
Chapter 22 – Accounting Changes and Error Analysis
Applicable Professional Pronouncements:
ASC 250-10, Accounting Changes and Error Corrections: Overall (FASB Statement No. 154, Accounting Changes and Error Corrections)