Question

Please answer both questions.

1.Chase Corp. had the following infrequent transactions during 2014 A $375,000 gain from selling the only investment Chase has ever owned. A $525.000 gain on the sale of equipment. A $175,000 loss on the write-down of inventories In its 2014 income statement, what amount should Chase report as total infrequent net gains that are not considered extraordinary? a. $200,000 b. $350,000 C. $725,000 d. $900,000. Which of the following should be reported as a prior period adjustment? Change in Estimated Lives Mistakes in the Application of of Depreciable Assets Accounting Principles Yes Yes No Yes Yes No No NO

Answer 1

Answer -

In its 2014 income statement, Chase Corp. should report $350,000 as total infrequent net gains that are not considered extraordinary.

Gain on the sale of equipment = $525,000

(-) loss on the write down of inventories = ($175,000)

= Infrequent net gains = $350,000

Note - Gain from selling the investment is not a normal activity. It is infrequent and unusual in nature.

Therefore, the correct answer is option b, $350,000.

Answer -

Prior period adjustment is made where there is mistake or error in application of accounting principles in preparation of previous years financial statements.

Change in estimated lives of depriciable assets is not considered as a prior period adjustment. Estimations are based on certain circumstances. Change in circumstances lead to change in estimations, which cannot be regarded as a mistake. So, the answer is no.

Mistakes in the application of accounting principles requires prior period adjustment. Accounting principles are always constant unless there is a statutory requirement. If there is a mistake, then adjustment is required. So ,the answer is yes.

Therefore, the correct answer is option b. No, Yes.