Question 1 Joblonsky Inc. has recently hired a new independent auditor, Karen Og

Question

Question 1

Joblonsky Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants "to get everything straightened out." Consequently, she has proposed the following accounting changes in connection with Joblonsky Inc.'s 2014 financial statements. At December 31, 2013, the client had a receivable of $822,000 from Hendricks Inc. on its statement of financial position. Hendricks Inc. has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item. The client proposes the following changes in depreciation policies. For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2013, would have been $252,000 less. The effect of the change on 2014 income alone is a reduction of $77,000. For its new equipment in the leasing division, the client proposes to adopt the sum-of-the-years-digits depreciation method. The client had never used SYD before. The first year the client operated a leasing division was 2014. If straight-line depreciation were used, 2014 income would be $107,000 greater.

Explanation / Answer

Proper adjustment to the December 31, 2013 Retained earnings = Increase by $358000.

Changes (1) (2) 1. Accounting estimate Decreased by 822000 2. Accounting policy increase of 30000 3. Correction of an error Decreased by 232000 4. Accounting estimate No Effect 5. Accounting policy Increase by 327000 6. Accounting policy Increase by 1055000

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