Case #1

Generally accepted accounting principles should be applied consistently from period to period. However, changes within a company, as well as changes in the external economic environment, may force a company to change an accounting method. The specific reporting requirements when a company changes from one generally accepted inventory method to another depend on the methods involved.

Required:

Explain the accounting treatment for a change in inventory method (a) not involving LIFO, (b) from the LIFO method, and (c) to the LIFO method. Explain the logic underlying those treatments. Also, describe how disclosure requirements are designed to address the departure from consistency and comparability of changes in accounting principle.

Case #2

A company may acquire property, plant, and equipment and intangible assets for cash, in exchange for a deferred payment contract, by exchanging other assets, or by a combination of these methods.

1. Identify six types of costs that should be capitalized as the cost of a parcel of land. For your answer, assume that the land has an existing building that is to be removed in the immediate future in order that a new building can be constructed on the site.
2. At what amount should a company record an asset acquired in exchange for a deferred payment contract?
3. In general, at what amount should assets received in exchange for other nonmonetary assets be valued? Specifically, at what amount should a company value a new machine acquired by exchanging an older, similar machine and paying cash?