Identification and Effects of Changes and Errors
Response to the following problem:
The following are several independent events:
1. Change from the FIFO to the LIFO inventory cost flow assumption.
2. Write-off of patent due to the introduction of a competing product.
3. Payment to the Internal Revenue Service in settlement of a dispute over previous year's taxes.
4. Increase in allowance for uncollectible accounts from 2% to 4% of credit sales.
5. Change from straight-line to double-declining-balance method.
6. Write-down of an asset to reflect probable future losses.
7. A change from full cost to successful efforts accounting for oil exploration costs.
Required:
Indicate how a company reports the preceding items (specify whether increases or decreases can generally be expected) in its financial statements of the current year.