Analysis of Three Accounting Changes and Errors listed below are three independent, unrelated sets of facts relating to accounting changes.
Situation 1
Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Sanford president, B. J. Jimenez, is willing to change to the accrual method of revenue recognition.
Situation 2
Hopkins Co. decides in January 2011 to change from FIFO to weighted-average pricing for its inventories.
Situation 3
Marshall Co. determined that the depreciable lives of its fixed assets are too long at present to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years. For each of the situations described, provide the information indicated below.
(a) Type of accounting change.
(b) Manner of reporting the change under current generally accepted accounting principles including a discussion, where applicable, of how amounts are computed.
(c) Effect of the change on the balance sheet and income statement.