Case - Accounting Changes and Errors
Background: You are a newly certified public accountant recently hired by Harrison Certified Public Accountants, LLP. Several clients, who after the year-end 12/31/2014 but before their books were closed, contacted the firm regarding transactions involving accounting changes and errors. Each of these clients is an SEC registrant and needs guidance on the application of the correct FASB pronouncement related to their situation. Your direct supervisor wants you to research the authoritative guidance related to these independent situations and determine the proper course of action before meeting with the clients.
Cook Corporation discovered the following two situations:
- A $6,000 insurance premium paid on October 1, 2013, for a policy that expires on September 30, 2015, was originally charged to insurance expense.
- A patent was acquired at the beginning of 2013 for $210,000. No amortization has been recorded since its acquisition. The original life of the patent was 12 years.
1. What is the proper accounting treatment for these situations? Cite the authoritative guidance.
2. What journal entries would be appropriate at 12/31/2014? Ignore tax implications.
3. What information must be disclosed in the notes to the financial statements? Cite the authoritative guidance.