Tutorial 13 & 14 [exercise].docx

Tutorial 13 & 14 Financial Accounting 2 Accounting Changes & Error, Special Topics in Financial Reporting Teaching Assistant Team PROBLEM 1 On March 2nd, 2011, PT Kepal Dancow purchased equipment for $1,210,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. In July 3rd, 2017, the company determined that the total estimated life should be 15 years with a salvage value of $8,000 at the end of that time. Instructions: a. Prepare the entry (if any) to correct the prior years’ depreciation. b. Prepare the entry to record depreciation for year-end 2017. PROBLEM 2 Sejahtera Co. was organized in late 2012 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes. 2012 €140,000a 2014 €205,000 2013 160,000 2015 276,000 a Includes a $10,000 increase because of change in bad debt experience rate. The company has decided to expand operations and has applied for a sizable bank loan. The bank officer has indicated that the records should be audited and presented in comparative statements to facilitate analysis by the bank. Sejahtera Co. therefore hired the auditing firm of Check & Doublecheck Co. and has provided the following additional information: a. In early 2013, Sejahtera Co. changed its estimate from 2% to 1% on the amount of bad debt expense to be charged to operations. Bad debt expense for 2012, if a 1% rate had been used, would have been €10,000. The company therefore restated its net income for 2012. b. In 2015, the auditor discovered that the company had changed its method of inventory pricing from averagecost o FIFO. The effect on the income statements for the previous years is as follows: 2012 2013 2014 2015 Net income unadjusted – average-cost basis €140.000 €160.000 €205.000 €276.000 Net income unadjusted – FIFO basis 155.000 165.000 215.000 260.000 Difference 15.000 5.000 10.000 (16.000) c. In 2015, the auditor discovered that the company incorrectly overstated the ending inventory by $14,000 in 2014. Instructions: a. Indicate how each of these changes or corrections should be handled in the accounting records (ignore income tax considerations). b. Present comparative net income number for the years 2012 to 2015 (ignore income tax considerations). PROBLEM 3 A. Explain the difference between counterbalance and non-counterbalance error. Determine whether the example is counterbalance or non-counterbalance error and prepare the journal under assumption (i) the company has not closed the book, (ii) the company has closed the book! 1. The wages for 2016 is paid on January 2017 $ 1000, identified on Dec 31, 2017 (now). 2. Mistake of expensing the machine costing $ 50.000 with no residual value and 5 years life on 1 Jan 2015 identified on Dec,31 2016 (now).

B. As an Interns, you have been assigned to examine error in financial statement of MATCHA company. You discovered following situations: 1. Depreciation of Vehicle for 2015 and 2014 $ 3.200 not recorded. 2. The physical inventory measurement on Dec 31, 2014 did not include merchandise inventory costing $19.000 that had been temporarily stored in public warehouse. MATCHA used periodic inventory system. 3. A collection of $ 5.600 on account from customer, OREO, on dec,31 2015 was not recorded until January 2016. 4. MATCHA has portfolio investment that it manages for short term price fluctuation. No entry has been made to adjust the price change. Cost Fair Value Dec 31, 2014 $ 95.000 S 95.000 Dec 31, 2015 $ 84.000 $ 82.000 5. A large equipment was bought on January 3, 2015 and was charged to Maintenance Expense for $48.000. The equipment has 8 years life and remaining residual value of $ 8.000. MATCHA used straight line depreciation for equipment. 6. A $ 24.000 insurance premium was paid in advance on July 1, 2014 that will expire on July 2017. It was charged as insurance expense. 7. A trademark was acquired by MATCHA on 1 Jan 2014 for $60.000 but has not recorded (max allowable amortization for trademark is 10 years). Instruction: Assuming the book in 2015 has not been closed, prepare the adjustment journals needed! PROBLEM 4 a. Explain the difference between PSAK and PSAK ETAP’s accounting treatment of: 1. Content of Financial Statement 2. Investment Property and Fix Asset 3. Intangible Assets 4. Leasing Transactions 5. Tax and Deferred Tax 6. Capitalization of interest expense on qualifying asset b. Explain the difference of PSAK ETAP and PSAK EMKM (min. for Financial Statement, Inventory, Fix Asset) c. Explain whether the situation below can be categorized as adjusting or non-adjusting event based on PSAK 8! 1. PT. Perdagangan Internasional deals extensively with foreign entities and its financial statements reflect this foreign currency transactions. Subsequent to the balance sheet date, and before the “date of authorization” of the issuance of the financial statements, there were abnormal fluctuations in foreign currency rates. 2. At the balance sheet date, 31 December 2015, PT. Galau carried a receivable from PT. Gagal, a major customer, at IDR 100million. The “authorization date” of the financial statements is on 16 February 2015. PT Gagal declared bankruptcy on Valentine’s Day (14 February 2015).