ACCT632 Financial Accounting Theory: WEEK 5 CH 6 Classify U.S. Income Statement

| September 4, 2016


ACCT632 Financial Accounting Theory: WEEK 5 CH 6 Classify U.S. Income Statement Items
Case 6-11 Classification of Income Statement Items
You are in charge of reviewing the classification of unusual items that have occurred for your CPA firm during
the current year. The following material items have come to your attention:
1. A department store incorrectly overstated its ending inventory 2 years ago. Inventory for all other
periods is correctly computed.
2. An automobile dealer sells for $137,000 an extremely rare antique automobile which it purchased for
$21,000 10 years ago. The antique auto is the only similar item the dealer owns.
3. An oil company extended the estimated useful life of certain drilling equipment during the current year
from 8 to 12 years. As a result, depreciation for the current year was materially lowered.
4. A discount outlet changed its computation for bad debt expense from 1% of accounts receivable to 2%
of sales because of changes in its customer clientele.
5. A mining company sells a foreign subsidiary engaged in uranium mining, although it (the seller)
continues to engage in uranium mining in other countries.
6. A grocery store chain changes from the average cost method to the FIFO method for inventory costing
7. A construction company, at great expense, prepared a major proposal for a government loan. The loan is
not approved.
8. A manufacturer incurred heavy expenses resulting from a union strike by its employees early in the year.
9. Depreciation for a prior period was incorrectly understated by $2,000,000. The error was discovered in
the current year.
10. A chicken farm incurred a large cost because the state required that all chickens in the state be killed to
halt the spread of bird flu. Such a situation has not occurred in the state for 20 years.
11. A food processor sells wholesale foods to supermarket chains and to fast-food restaurants, two
distinguishable classes of customers. The food processor decides to discontinue the division that sells to
fast-food restaurants.
REQUIRED: Consider each situation individually. Identify each case by number AND the descriptive sentence.
Please address the questions below for each item using full sentences. Granted, this is not an essay, per se, but
grammar and diction count. The journal entry or journal entries for item (a) should be in good form.
a).Review and determine or correct the appropriate, U.S. GAAP accounting treatment, including the balance
sheet and income statement accounts impacted.
b).Specify the section or sections on each financial statement: Income statement, balance sheet, and cash flow.
c).Identify the ASC reference and cite the principles and other basis that you used for the choice.
As usual, submit your work in BB by Wed, Feb 17, 2016.
We’ll discuss them in class on Feb 18.

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