Task to complete:
In 2010, the FASB introduced a new standard for the valuation of certain property investments. Previously such investments were valued at cost. The new standard requires valuation at fair value with all gains and losses being taken to the income statement. This situation is to be treated as an acceptable change to an accounting policy.
The difference between the balance sheet valuation under the old cost policy and the new fair value policy for the property investments at each balance sheet date is as follows:
Year Valuation basis
Cost Fair
Value Value
2007 140,000 160,000
2008 190,000 280,000
2009 320,000 440,000
2010 300,000 432,000
The company presents of a two year presentation in its 2010 financial statements. A tax rate of 30% applies to all years.
1. In preparing its statement of stockholders’ equity the adjustment to opening retained earnings at January 1, 2009 would include a restatement adjustment amount of is $63,000
2. As a result of this accounting change, taxes payable at 12/31/10 would be increased by: $39,600