Question

4.1 Discussion Post . Instructions • Respond to the topic below by Sunday, September 20, 11:59 pm EST by posting your response to the discuss board Discussion Topic: Chapter 4 - Judgement Case 4-6 Income Statement Presentation Each of the following situations occurred 2021 for one of your audit clients 1. An inventory write-down due to obsolescence 2. Discovery that depreciation expenses were omitted by accident from 2020's income statement. 3. The useful lives of all machinery were changed from 8 to 5 years 4. The depreciation method used for all equipment was changed from the declining method to the straight-line method 5. Restructuring costs were incurred 6. The Stridwell Company, a manufacturer of shoes, sold all of its retail outlets. The retail stores are considered a component of the entity. 7. The inventory costing method was changed from FIFO to average cost. REQUIRED 1. For each situation identify the appropriate reporting treatment from the list below (consider each event to be material). a. As an unusual gain or loss b. As a prior period adjustment c. As a change in accounting principle d. As a discontinued operation

Answer 1

	Situation	Treatment	Co, Bo or RE
1	The write-off of inventory due to obsolescence.	As an unusual gain or loss	BO
2	Discovery that depreciation expenses were omitted by accident from 2020's income statement.	As a prior period adjustment.	CO
3	The useful lives of all machinery were changed from 8 to 5 years.	As a change in accounting estimate.	CO
4	The depreciation method used for all equipment was changed from the declining method to the straight-line method.	As a change in accounting principle.	CO
5	Restructuring costs were incurred.	As a change in accounting estimate achieved by a change in accounting principle.	RE
6	The Stridewell Company, a manufacturer of shoes, sold all of its retail outlets. The retail stores are considered components of the entity.	As a discontinued operation.	BO
7	The inventory costing method was changed from FIFO to average cost.	As a change in accounting principle.	CO