Hanley Corporation Is Preparing Its Year-End Financial Statements and Needs

question 7

Essay

Hanley Corporation is preparing its year-end financial statements and needs your assistance evaluating the following items:
1. Management has decided to switch from FIFO inventory cost flow assumption to weighted average cost formula.
2. It was discovered during the year-end inventory count that the prior year inventory balance reported on the balance sheet incorrectly excluded a lot of inventory received in the warehouse while the year-end count was being performed.
3. Management decided to reduce the remaining useful life of its specialized equipment from 6 years to 4 years to reflect new information that suggests the equipment will be outdated earlier than originally expected.
4. Hanley began bidding on long-term contracts for the first time in the company's history. Management decided to use the percentage of completion method to account for these long-term contracts.
Instructions
a) Analyze each of the four events described above and identify the type of accounting change that has occurred.
b) Indicate whether each event above should be accounted for retrospectively or prospectively.

---

Definitions:

Aorta

The largest artery in the body, carrying oxygen-rich blood from the heart to various parts of the body.

Contracts

Legally binding agreements between two or more parties that outline obligations and rights.

Pulmonary Embolism

A blockage in one of the pulmonary arteries in the lungs, usually caused by blood clots that travel from the legs or other parts of the body.

Chest Pain

A symptom that can be caused by a variety of conditions, ranging from non-serious issues like indigestion to life-threatening ones like heart attacks.