Krewatch, Inc., is a vertically integrated manufacturer and retailer of golf clubs and accessories (gloves, shoes, bags, etc.). Krewatch maintains separate financial reporting systems for each of its facilities. The company experienced the following events in 2014:
1. After several years of production problems at the accessories manufacturing plant, Krewatch sold the plant to an investor group headed by a former manager at the plant.
2. Krewatch incurred restructuring costs of $12,562,990 when it eliminated a layer of middle management.
3. Krewatch extinguished $200 million in 30-year bonds issued 18 years ago. These bonds were the only ones issued in the company’s history. Krewatch recognized a gain on this transaction.
4. Krewatch changed its method of accounting for inventory from FIFO to the average cost method. Sufficient information was available to determine the effect of this change on prior years’ earnings numbers.
5. Due to technological advances in golf club manufacturing, management determined that production equipment would need to be upgraded more frequently than in the past. Consequently, the useful lives of equipment for depreciation purposes were reduced.
6. The company wrote off inventory that was not salable.
7. Equipment was sold at a loss.

For each event, (1) identify the appropriate reporting treatment from the following list (consider each event to be material), and (2) indicate whether it would be included in income from continuing operations, would appear on the income statement below that subtotal, or would require retrospective application.
a. Change in accounting estimate.
b. Change in accounting principle.
c. Discontinued operation.
d. Special or unusual item.
e. Extraordinary item

  • CreatedSeptember 10, 2014
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