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ACC 423 Week 5 Individual Assignment

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ACC 423 Week 5 Individual Assignment On January 2, 2005, to better reflect the variable use of its only machine, Holly, Inc. elects to change its method of depreciation from the straight-line method to the units-of-production method. The original cost of the machine on January 2, 2003, is $50,000, and its estimated life is ten years. Holly estimates that the machine’s total life is 50,000 machine hours. Machine-hour usage was 8,500 during 2004 and 3,500 during 2003. Machine-hour usage for 2005 is 3,800. Holly’s income tax rate is 30%. Holly should report the accounting change in its 2005 financial statements as a(an) Estimate change recognizing $3,800 of depreciation in 2005. Estimate change recognizing $4,000 of depreciation in 2005. Cumulative effect of a change in accounting principle of $1,400 in its income statement. Adjustment to beginning retained earnings of $1,400. Miller Co. discovers that in the prior year, it failed to report $40,000 of depreciation related to a newly constructed building. The depreciation was computed correctly for tax purposes. The tax rate for the current year is 40%. What was the impact of the error on Miller’s financial statements for the prior year? Understatement of accumulated depreciation of $24,000. Understatement of accumulated depreciation of $40,000. Understatement of depreciation expense of $24,000. Understatement of net income of $24,000. How should the effect of a change in accounting estimate be accounted for? By restating amounts reported in financial statements of prior periods. By reporting pro forma amounts for prior periods. As a Prior period adjustment to beginning retained earnings. In the period of change and future periods if the change affects both. For 2003, Pac Co. estimates its two-year equipment warranty costs based on $100 per unit sold in 2003. Experience during 2004 indicates that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported In 2004 income from continuing operations. As an accounting change, net of tax, below 2004 income from continuing operations. As an accounting change requiring 2003 financial statements to be restated. As a correction of an error requiring 2003 financial statements to be restated. While preparing its 2005 financial statements, Dek Corp. discovers computational errors in its 2004 and 2003 depreciation expense. These errors result in overstatement of each year’s income by $25,000, net of income taxes. The following amounts were reported in the previously issued financial statements: 2004 2003 __________ __________ Retained earnings, January 1 $700,000 $500,000 Net income $150,000 $200,000 __________ __________ Retained earnings, December 31 $850,000 $700,000 ========== ========== Dek’s 2005 net income is correctly reported at $180,000. Which of the following amounts should be reported as Prior period adjustments and net income in Dek’s 2005 and 2004 comparative financial statements? Year Prior period adjustment Net income 2004 2005 – ($50,000) $150,000 $180,000 2004 2005 ($50,000) – $150,000 $180,000 2004 2005 ($25,000) – $125,000 $180,000 2004 2005 – – $125,000 $180,000 The senior accountant for Carlton Co., a public company with a complex capital structure, has just finished preparing Carlton’s income statement for the current fiscal year. While reviewing the income statement, Carlton’s finance director noticed that the earnings-per-share data have been omitted. What changes will have to be made to Carlton’s income statement as a result of the omission of the earnings-per-share data? No changes will have to be made to Carlton ‘s income statement. The income statement is complete without the earnings-per-share data

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