SS Intermediate ACC III
SS Intermediate ACC III ACC 4953
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This 12 page Class Notes was uploaded by Rocio West on Thursday October 29, 2015. The Class Notes belongs to ACC 4953 at University of Texas at San Antonio taught by Jeffery Boone in Fall. Since its upload, it has received 9 views. For similar materials see /class/231439/acc-4953-university-of-texas-at-san-antonio in Accounting at University of Texas at San Antonio.
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Chapter 23 Accounting Changes and Errors Chapter topics Change in accounting method N Change in accounting estimate E Change in accounting entity 4 Correction of errors Topic 23 1 Accounting Change Readings 1 Textbook pages 11981213 Activities 23 11 Obtain the 2008 annual report of CampD Technologies at httpwwwsecgovArchivesed ardata808064000119312508079165d10khtm Then obtain the 2007 annual report of CampD Technologies at httpwwwsecgovA 39 39 J J 808064000116923207001886d71547 10ktxt Compare the numbers reported for scal 2007 as reported in the 2007 annual report to the numbers for scal 2007 as reported in the 2008 annual report You will notice that the numbers are different Why What sort of accounting change has occurred Was the change made prospectively or retrospectively What journal entry must CampD have made during 2008 to recast their 1312007 balance sheet Show the journal entry in detail Footnote disclosure found in 2008 annual report 2 CHANGE IN METHOD OF ACCOUNTING On September 7 2007 the Company changed the method of accounting for its inventory from the lastin firstout LIFO method to the firstin firstout FIFO method With the divestiture of the Company s Power Electronics Division which was announced on August 31 2007 the Company s remaining business is all batteryrelated and as a result the Company believes the FIFO inventory method provides better comparability with industry peers more accurate matching of the Company s revenues and expenses a relevant and meaningful balance sheet valuation methodology and a more efficient financial closing process In accordance with SFAS No 154 Accounting Changes and Error Corrections the Company has retrospectively applied this change in method of inventory costing Had the Company continued to use the LIFO method inventory would have decreased and the net loss for the year would have increased by 21711 2 0 DISC ON TINU ED OPERATIONS In connection with the restructuring plan discussed in note 15 the Company completed the sale of its Power Electronics Division on August 31 2007 for 85000 and recognized a gain of approximately 3900 As a result of this decision and in accordance with SFAS No 144 Accounting for the Impairment or Disposal of LongLived Assets the Company presents the results of operation of the Power Electronics Division for the fiscal years ended January 31 2008 2007 and 2006 respectively as discontinued operations On October 24 2007 the Company announced the sale of certain assets of its Motive Power Division As a result of this decision and in accordance with SFAS No 144 Accounting for the Impairment or Disposal of LongLived Assets the Company presents the results of operation of the Motive Power Division for the fiscal years ended January 31 2008 2007 and 2006 respectively as discontinued operations The Company received 3100 during the fiscal year for the sale of finished goods and certain identified equipment At January 31 2007 property plant and equipment in the amount of 3538 related to the Motive Power Division was classified as held for sale In addition at January 31 2007 inventory in the amount of 3869 was also classified as held for sale As 0 January 31 2008 the balance sheet has 450 in fixed assets related to discontinued operations that are held for sale 2007 2007 restated acctg change disc op total ASSETS Current assets Cash and cash equivalents 12596 5384 7212 7212 Accounts receivable less allowance for doubtful accounts of 1869 11 2007 and 2889 11 2006 84241 55397 28844 28844 Inventories 88229 53172 9022 44079 35057 Deferred income taxes 134 134 0 0 Prepaid taxes 2634 2634 0 0 Other current assets 7082 6121 961 961 Assets held for sale 132878 2755 130123 132878 Total current assets 194916 255720 11777 49027 60804 Property plant and equipment net 100815 80460 20355 20355 Deferred income taxes 531 531 0 0 Intangible and other assets net 35429 15543 19886 19886 GoodWill 68520 59733 8787 8787 TOTAL ASSETS 400211 411987 11777 1 11776 LIABILITIES AND STOCKHOLDERS39 EQUITY Current liabilities Shortiterm debt 6498 1286 5212 5212 Accounts Payable 54215 40282 13933 13933 Book overdrafts 2310 2310 0 0 Accrued liabilities 21910 13708 8202 8202 Other current liabilities 32010 28983 3027 3027 Liabilities held for sale 36532 36532 36532 Total current liabilities 116943 123101 6158 6158 Deferred income taxes 9155 9155 0 0 Longiterm debt 147925 147925 Other liabilities 34750 28591 6159 6159 Total liabilities 308773 308772 1 1 Commitments and contingencies see Note 9 Minority interest 7548 7548 0 0 Stockholders39 equity Common stock 01 par value 75000000 shares authorized 29040960 and 28828428 shares issued in 2007 and 2006 respectively 290 290 0 0 Additional paldill capital 74188 74188 0 0 Treasury stock at cost 3391536 and 3380102 shares in 2007 and 2006 respectively 47110 47110 0 0 Accumulated other comprehensive loss 13952 13952 0 Retained earnings 70474 82251 11777 0 11777 Total stockholders39 equity 83890 95667 0 0 TOTAL LIABILITIES AND STOCKHOLDERS39 EQUITY 400211 411987 11777 11776 CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended JANUARY 31 Dollars in thousands except per share data 2007 2007 restated ltSgt ltCgt NET SALES 524580 287241 COST OF SALES 450995 249385 GROSS RROEIT 73585 37856 OPERATING EXPENSES Selling general and administrative expense 60907 33228 Research and development expenses 27302 6232 Identifiable intangible asset impairment Goodwill impairment 13947 OPERATING LOSS 28571 1604 Interest expense net 13437 11260 Other expense income net 1245 1393 LOSS BEEORE INOOME TAXES AND MINORITY INTEF 43253 44257 Provision benefit for income taxes 4094 919 LOSS BEEORE MINORITY INTEREST 47347 45176 Minority interest 4273 4273 Loss from continuing operations 46074 43903 Loss from discontinued operations 28827 NET LOSS 46074 42730 acctg change disc op total 237339 237339 3344 198266 201610 3344 39073 35729 27679 27679 21070 21070 13947 13947 3344 23623 26967 2177 2177 148 148 3344 25652 28996 3175 3175 3344 28827 32171 0 0 3344 28827 32171 28827 28827 3344 0 3344 AJE to record discontinued operations Cash and cash equivalents Accounts receivable Inventories Other current assets Assets held for sale Property plant and equipment Intangible and other assets Goodwill Shortterm debt Accounts payable Accrued liabilities Other current liabilities Liabilities held for sale Other current liabilities Sales Cost of sales Selling general and administrative expenses Research and development Goodwill impairment Interest expense Other expense Provision for income tax expense Loss from discountinued operations AJE to record accounting change Inventories Assets held for sale Cost of sales Retained earnings DR 130123 521 2 1 3933 8202 3027 6159 237339 148 28827 432970 9022 2755 11777 CR 7212 28844 44079 961 20355 19886 8787 36532 198266 27679 21070 18947 2177 8175 432970 8344 8433 11777 23 12 Obtain the quarterly nancial statements for Teekay Corp for Q1 2008 at httpwwwsecgov A 39 39 J J quotl1971000091197108000018form6khtm The company made an accounting change during Q1 2008 What type of change was made What sort of disclosure did they make regarding the change Was the change handled retrospectively or prospectively Footnote disclosure 17 Change in Accounting Estimate Because of an increase in steel prices and scrap values for vessels the Company has increased the estimated residual value of certain of its vessels As a result depreciation and amortization expense has decreased by 33 million and net income has increased by 33 million or 005 per share for the three months ended March 31 2008 23 13 Obtain the 1999 annual report of Exxon at httpwwwsecgov A 39 39 J J 14088000093066100000656txt Next obtain the 1998 annual report of Exxon at httpwwwsecgov 39 39 J J 140880000930661 99000626txt Compare the 1998 nancial statement numbers as reported in the 1999 annual report to the 1998 nancial statement numbers as reported in the 1998 annual report Are the amounts the same Why What sort of accounting change occurred How was the change handled Prospectively or retrospectively 3 Merger of Exxon Corporation and Mobil Corporation On November 30 1999 a wholly owned subsidiary of Exxon Corporation Exxon merged with Mobil Corporation Mobil so that Mobil became a wholly owned subsidiary of Exxon the quotMergerquot At the same time Exxon changed its name to Exxon Mobil Corporation ExxonMobil Under the terms of the agreement approximately 10 billion shares of ExxonMobil common stock were issued in exchange for all the outstanding shares of Mobil common stock based upon an exchange ratio of 132015 Following the exchange former shareholders of Exxon owned approximately 70 percent of the corporation while former Mobil shareholders owned approximately 30 percent of the corporation Each outstanding share of Mobil preferred stock was converted into one share of a new class of ExxonMobil preferred stock As a result of the Merger the accounts of certain refining marketing and chemicals operations jointly controlled by the combining companies have been included in the consolidated financial statements These operations were previously accounted for by Exxon and Mobil as separate companies using the equity method of accounting The Merger was accounted for as a pooling of interests Accordingly the consolidated financial statements give retroactive effect to the Merger with all periods presented as if Exxon and Mobil had always been combined Certain reclassifications have been made to conform the presentation of Exxon and Mobil 23 14 Obtain the 2006 annual report of Stage Stores Inc at httpwwwsecgovAu 39 39 J J 6885000000688507000046form10khtm Read footnote 2 to the nancial statements What sort of accounting change occurred during 2006 How was the change handled Prospectively or retrospectively Was the approach used typical or atypical for this type of change Why was this approach used Is it acceptable under GAAP NOTE 2 CHANGES IN ACCOUNTING PRINCIPLES The Company changed its method of accounting for merchandise inventories from the retail method to the weighted average cost method the cost method during the second quarter of 2006 retrospectively applied as of the beginning of 2006 The Company believes the cost method is preferable as it results in an inventory valuation that more closely reflects the acquisition cost of the Company s inventory In addition the cost method provides for a better matching of cost of sales with related sales Cost of sales under the cost method represents the weighted average cost of the individual item sold rather than the cost of an item based on an average margin realized on an entire department as under the retail method In connection with the change in its method of accounting for merchandise inventories to the cost method the Company also changed its accounting policy related to its historical treatment of distribution center costs associated with preparing inventory for sale such as distribution payroll benefits occupancy depreciation and other direct operating expenses and now capitalizes these related costs The Company believes it is preferable to capitalize these costs as it incorporates a key component of the costs associated with preparing inventory for sale into the valuation of inventory on a cost basis and achieves a better matching of cost of sales with related sales The effect of the changes in accounting principles for periods prior to 2006 is not determinable as the periodspecific information required to value inventory on the cost method is not available for periods prior to January 29 2006 As stated in SFAS 154 when it is impracticable to determine the cumulative effect of applying a change in accounting principle to any prior period the new accounting principle shall be applied as if the changes were made prospectively as of the earliest date practicable Therefore the Company adopted the new methods of accounting for inventory retrospectively to January 29 2006 the first day of 2006 The effect of the changes in accounting principles on inventory values as of the beginning of 2006 was a net reduction of 156 million of which 215 million was a reduction related to the change to the cost method partially offset by a 59 million increase related to capitalizing distribution center costs Approximately 98 million net of tax of approximately 58 million was recorded as a reduction of retained earnings in the Statement of Stockholders Equity as of the beginning of 2006 23 15 Distinguish between a change in accounting method and a change in accounting estimate Are the two accounted for the same Differently Explain Change in accounting method retrospectively Change in accounting estimate prospectively Topic 23 2 Error Corrections Readings 1 Textbook pages 12131225 Activities 23 21 Obtain the 2007 annual report of Dell Computer at httpwwwsecgovAu 39 39 J J 826083000095013407022267d48366e10vkhtm Next obtain the 2006 annual report of Dell Computer at httpwwwsecgovAu 39 39 J J 826083000095013406005149d33857e10vkhtm Compare the 2006 nancial statement numbers as reported in the 2007 annual report to the 2006 nancial statement numbers as reported in the 2006 annual report Are the numbers the same or different Why What happened How was this event handled in the 2007 annual report Note the circumstances involving this event are outlined in two Wall Street Journal articles Dell Details Accounting Woes 10312007 Dell to Restate 8172007 This event shows how actions that seem fairly harmless at the time can be viewed in a very different light after the fact and can land you in big trouble Anything approaching aggressive accounting is very unwise in today s environment Software revenue recognition The new filings suggest that one of the biggest problems uncovered in the investigation was the way 39 E Dill recognized revenue on certain software products it sells I39Dilh a large reseller of other companies software products said it historically recognized revenue from software licenses at the time the products were sold while deferring some revenue associated with support The Round Rock Texas company said in its filings that based on its internal review it should have deferred the recognition of more revenue from software sales In its restated nancial statement for scal 2005 39ilDell deducted 105 million from software revenue because of the issues Warranty liabilities Another issue was product warranties In some cases Tl39Dell said it improperly recognized revenue associated with warranties over a shorter period of time than the duration of the contract according to the lings S20 17 ABC Co sponsors a de ned bene t pension plan for its employees Balances of various pension related accounts were December 31 2000 December 31 001 Accumulated bene t obligation 100000 125250 Projected bene t obligation 160000 167000 Fair market value of plan assets 75000 79750 Contributions made to pension plan during 15000 Year 2001 Retirement bene ts paid to retirees during 17000 Year 2001 Accumulated other comprehensive income 0 loss There was no unrecognized net gainloss at December 31 2000 During Year 2001 the actual return on pension plan assets was equal to the expected return There was no modi cation to the pension plan made during Year 2000 a What amount of pension expense will appear on the 2001 income statement What amount of pension assetpension liability will appear on the 123101 balance sheet Will it be an asset or liability What amount of Accumulated Other Comprehensive Income Loss will appear on the 123101 balance sheet b Answer a again assuming that the expected return on the pension plan assets in Year 2001 was 10 Will any ofthe unrecognized gainloss on pension plan assets be amortized to pension expense in Year 2002 Part a The pension plan at 12312000 was underfunded by 16000075000 85000 This amount would have been reported as a liability on the 12312000 balance sheet we39ll assume it was recorded in quotpension liabilityquot account The contribution of 15000 to the pension trust fund would have been recorded as Pension liability 15000 Cash 15000 Thus at 12312001 the pension liability account would have a balance of 70000 the 85000 balance at 112001 less the 15000 PBO 12312000 160000 interest cost service cost 24000 this amount must be inferred retirement benefits paid 17000 PBO 12312001 167000 MV assets 12312000 75000 contributions assume made on 12312001 15000 return on assets 6750 retirement benefits paid 17000 MV assets 12312001 79750 GAAP pension expense service cost interest cost 24000 Expected return on plan assets 6750 per the facts expected actual pension expense 17250 AJE at 12312001 pension expense 17250 Pension liability 17250 The adjusted balance of the pension liability account after this AJE is Balance 12312000 85000 contribution of cash to pension trust fund 15000 AJE from above 17250 Balance 12312001 Funded status of pension fund at 12312001 PBO 167000 MV assets 79750 under funded liability There will be no Accumulated Other Comprehensive Income Loss on the 12 3101 balance sheet Part b Pension expense for 2001 will change in Part b since the expected return on plan assets i actual return on plan assets GAAP pension expense service cost interest cost 24000 Expected return on plan assets 7500 7500010 pension expense 16500