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Question:
The purpose of a statement of stockholders' equity is to
Question 5 answers
disclose the computation of book value per share of stock.
replace the statement of retained earnings.
summarize the changes in the components of stockholders' equity for a period of time.
budget the transactions expected to occur during the forthcoming period.
A company changes from the double-declining-balance method of depreciation to the straight-line method. Depreciation taken prior to the change was $4,000 but would have been $2,500 if the straight-line method had been used all along. Ignoring taxes, what should be done to account for the change?
Question 6 answers
The $1,500 should be included on the income statement in the year of the change.
The $1,500 should be amortized over the remaining life of the asset.
The $1,500 should be included on the balance sheet as a deferred charge.
A prior period adjustment should be made for the $1,500.
Q5 The purpose of a statement of stockholders' equity is to summarize the changes in the components of stockholders' equity for a period of time.
Q6 Since this is a change in accounting policy, the change must be made retrospectively, so a prior period adjustment should be made for the $1,500, with comparatives restated. (In contrast, a change in accounting estimate is always applied prospectively)
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