Question

At the beginning of 2016, Wagner Implements undertook a variety of changes in accounting methods, corrected several errors, and instituted new accounting policies.

Required: Identify for each item below the type of change and the reporting approach Wagner would use.

Type of Change (choose one)

P. Change in accounting principle

E. Change in accounting estimate

EP. Change in estimate resulting from a change in principle

X. Correction of an error

N. Neither an accounting change nor an accounting error.

Reporting Approach (choose one)

R. Retrospective approach

P. Prospective approach

Type of Change Reporting Approach Item

1. By acquiring additional stock, Wagner increased its investment in Wise, Inc., from a 12% interest to 25% and changed its method of accounting for the investment to the equity method.

2. Wagner instituted a postretirement benefit plan for its employees in 2016. Wagner did not previously have such a plan.

3. Wagner changed its method of depreciating computer equipment from the SYD method to the straight-line method.

4. Wagner determined that a liability insurance premium it both paid and expensed in 2015 covered the 2015–2017 period.

5. Wagner custom-manufactures farming equipment on a contract basis. Wagner switched its accounting for these long-term contracts from the completed-contract method to the percentage-of-completion method.

6. Due to an unexpected relocation, Wagner determined that its office building, previously depreciated using a 45-year life, should be depreciated using an 18-year life.

7. Wagner offers a three-year warranty on the farming equipment it sells. Manufacturing efficiencies caused Wagner to reduce its expectation of warranty costs from 2% of sales to 1% of sales.

8. Wagner changed from LIFO to FIFO to account for its materials and work-in-process inventories.

9. Wagner changed from FIFO to average cost to account for its equipment inventory.

10. Wagner sells extended service contracts on some of its equipment sold. Wagner performs services related to these contracts over several years, so in 2016 Wagner changed from recognizing revenue from these service contracts on a cash basis to the accrual basis.

Answer 1

Wagner Implements made various accounting changes at the beginning of 2016. The changes included changes in accounting principles and estimates, corrections of errors, and the institution of new accounting policies. These changes were reported using either a retrospective or prospective approach.

Step-by-step explanation:

Type of Change: EP. Change in estimate resulting from a change in principle
Reporting Approach: R. Retrospective approach
Item: By acquiring additional stock, Wagner increased its investment in Wise, Inc., from a 12% interest to 25% and changed its method of accounting for the investment to the equity method.

1. Type of Change: P. Change in accounting principle
   Reporting Approach: P. Prospective approach
   Item: Wagner instituted a postretirement benefit plan for its employees in 2016. Wagner did not previously have such a plan.
2. Type of Change: P. Change in accounting principle
   Reporting Approach: P. Prospective approach
   Item: Wagner changed its method of depreciating computer equipment from the SYD method to the straight-line method.
3. Type of Change: N. Neither an accounting change nor an accounting error
   Reporting Approach: N/A
   Item: Wagner determined that a liability insurance premium it both paid and expensed in 2015 covered the 2015–2017 period.
4. Type of Change: P. Change in accounting principle
   Reporting Approach: P. Prospective approach
   Item: Wagner switched its accounting for these long-term contracts from the completed-contract method to the percentage-of-completion method.
5. Type of Change: P. Change in accounting estimate
   Reporting Approach: P. Prospective approach
   Item: Due to an unexpected relocation, Wagner determined that its office building, previously depreciated using a 45-year life, should be depreciated using an 18-year life.
6. Type of Change: E. Change in accounting estimate
   Reporting Approach: P. Prospective approach
   Item: Manufacturing efficiencies caused Wagner to reduce its expectation of warranty costs from 2% of sales to 1% of sales.
7. Type of Change: P. Change in accounting principle
   Reporting Approach: P. Prospective approach
   Item: Wagner changed from LIFO to FIFO to account for its materials and work-in-process inventories.
8. Type of Change: P. Change in accounting principle
   Reporting Approach: P. Prospective approach
   Item: Wagner changed from FIFO to average cost to account for its equipment inventory.
9. Type of Change: P. Change in accounting principle
   Reporting Approach: P. Prospective approach
   Item: Wagner changed from recognizing revenue from these service contracts on a cash basis to the accrual basis.

Answer 2

Wagner Implements made a variety of changes that fall under changes in accounting principles, changes in accounting estimates, and corrections of errors, each with specific retrospective or prospective reporting approaches.

Step-by-step explanation:

Wagner Implements made various changes in accounting methods, corrected errors, and implemented new policies, each of which has specific classifications and reporting approaches under accounting standards:

Type of Change: P. Change in accounting principle | Reporting Approach: R. Retrospective approach

Type of Change: N. Neither an accounting change nor an accounting error | Reporting Approach: Not applicable as this is the initiation of a new policy.

Type of Change: P. Change in accounting principle | Reporting Approach: R. Retrospective approach

Type of Change: X. Correction of an error | Reporting Approach: R. Retrospective approach

Type of Change: P. Change in accounting principle | Reporting Approach: R. Retrospective approach

Type of Change: E. Change in accounting estimate | Reporting Approach: P. Prospective approach

Type of Change: E. Change in accounting estimate | Reporting Approach: P. Prospective approach

Type of Change: P. Change in accounting principle | Reporting Approach: R. Retrospective approach

Type of Change: P. Change in accounting principle | Reporting Approach: R. Retrospective approach

Type of Change: P. Change in accounting principle | Reporting Approach: R. Retrospective approach