The Blacksville Company reports sales of
The Blacksville Company reports sales of ACCT 311 â SSPRING 2016Homework Assignment #81. The Blacksville Company reports sales of $500,000 in Year One, its first yearin operations. Sales increased to $600,000 in Year Two and $700,000 in YearThree. The company had total reported expenses of $280,000 in Year One,$370,000 in Year Two, and $460,000 in Year Three. This company hasconsistently been applying the Red Method, which recognizes one particularexpense as always being equal to 10 percent of sales. Assume, though, that atthe very end of Year Three, company officials decide to change to the PurpleMethod. This method is also accepted by US GAAP but computes this sameexpense as simply being $62,000 each year. Blacksville is now preparing topresent income statements for only Years Two and Three. After making thechange, what is the beginning retained earnings reported for Year Three?Ignore income taxes. Assume no dividends are distributed.a. $436,000b. $442,000c. $448,000d. $450,0002. The Ralston Corporation buys a building on January 1, Year One for $900,000.The building has an expected useful life of 20 years along with an expectedsalvage value of $60,000. The straight-line method is being used but the halfyear convention is not. On June 18, Year Three, company officials come torealize that the total life for this building should have been 12 years ratherthan 20. In addition, they now believe there will be no salvage value. Theoriginal estimations were reasonable; they simply turned out to be incorrect.What is the book value of the building on the company’s December 31, YearThree, balance sheet?a. $729,000b. $734,400c. $742,600d. $748,0003. The Raleigh Corporation buys a building on January 1, Year One for $900,000.The building is expected to last for 10 years and have no salvage value. Thedouble-declining balance method is used for depreciation purposes. The halfyear convention is not used. Early in Year Three, company officials decide toswitch to the straight-line method of depreciation. What amount ofdepreciation expense should the company now recognize on its Year Threeincome statement?a. $57,600b. $62,400c. $72,000d. $90,0004. A company uses a particular accounting method which computes an expenseas $40,000 per year. The company wants to change to a different methodwhich computes the same expense as $56,000 per year. The company iscurrently computing its net income for Year Four although it has been usingthe original method since the start of Year One. In the current year, thecompany is only presenting its income statements for Years Three and Four.This is not a change in depreciation methods. Which of the following is nottrue? Ignore any potential tax effects.a. There should be a $32,000 reduction in the beginning retainedearnings reported for Year Three.b. Expense reported for Year Three should now be $56,000.c. Expense reported for Year Four should now be $56,000.d. A cumulative effect of $48,000 should be reported in the Year Fourincome statement.5. The Potter Corporation has been in business for four years. The completedcontract method has been used for all of those years to recognize revenue onconstruction projects. At the end of the fourth year, company officialsdecided to change to the percentage of completion method. That methodincreased income in the first three years by $80,000 and in Year Four by$30,000. How is this change in accounting principle reported?a. Retroactively â the reported income for the first three years isincreased by $80,000.b. Currently â only the $30,000 amount for the current year is changed.c. Cumulatively â the entire $110,000 income effect is recognized in thecurrent year.d. In the future â no changes are made until next year.
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