Please enable JavaScript.
Coggle requires JavaScript to display documents.
Chapter 1.11, FAR111078, FAR116810, FAR120002, FAR120006 - Coggle Diagram
-
FAR111078
How should a company report its decision to change from a cash-basis of accounting to accrual-basis of accounting?
Changing from cash basis to accrual basis of accounting is treated as an error correction, because this is moving from a non-GAAP method to a GAAP method of accounting. Hence, the change is included as part of prior period adjustment, by adjusting beginning balance of retained earnings.
FAR116810
Dunn Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Dunn’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Dunn’s liability for stamp redemptions was $6,000,000 at December 31, Yr8. Additional information for Yr9 is as follows:
Dunn Trading Stamp Co. should report liability for stamp redemption at December 31, Yr9 at $5,050,000.
-
a Liability on stamp redemption as on Dec 31, Yr8 $6,000,000
b Cost of redemptions (stamps sold prior to 1/1/Yr9) 2,750,000
c Cost of future redemptions in Yr10 (i.e. $2,250,000 x 80%) 1,800,000
d Liability on stamp redemption as on Dec 31, Yr9 (a - b + c) $5,050,000
Stamp service revenue from stamps sold to licensees $4,000,000
Cost of redemptions (stamps sold prior to 1/1/Yr9) 2,750,000
If all the stamps sold in Yr9 were presented for redemption in Yr10, the redemption cost would be $2,250,000. What amount should Dunn report as a liability for stamp redemptions at December 31, Yr9?
-
FAR120006
Income taxes for year 2 are estimated to be $3,000. There are no deferred or prepaid taxes.
Of the total $3,000 estimated income tax expense, $1,000 has already been recorded. To record the remaining estimate of $2,000. (Since there are no deferred or prepaid taxes, Income Tax expense would be equal to Income Tax payable).