Financial Statement Analysis Individual Task 5

Name: Rafi Renardi Sugiono
NIM: 20/454408/EK/22698
FINANCIAL STATEMENT ANALYSIS

INDIVIDUAL TASK 5
1. There are various types of accounting changes requiring different types of reporting
treatments. Understanding the different changes is important to analysis of financial
statements. Under what category of accounting changes is the change from sum-of-the-
years’-digits method of depreciation to the straight-line method for previously recorded
assets classified? Under what circumstances does this type of accounting change occur?
2. Prime Group reported net income totaling $1,200,000 for the year 2021. The following is
additional information obtained from the Prime Group’s financial reports:
- The Company purchased 110,000 shares of Inteleron Specialists for $10 per share
during the fourth quarter of 2021. The investment is accounted for as “available for
sale.” The value of the shares is $9 at the end of 2021.
- The Company purchased 10,000 shares of Sun Properties for $20 per share during the
fourth quarter of 2021. The investment is accounted for as “trading” securities. The
value of the shares is $23 at the end of 2021.
- The company began operations in the Baltic region of Europe during the year and
reports a foreign currency translation gain at the end of 2021 totaling $60,000.
- The decrease in the net pension assets for the year was $190,000. However, the periodic
pension expense reported in the income statement was only $115,000.
- The company reported unrealized holding losses on derivative instruments totaling
$11,000.
Required:
Compute comprehensive income for Prime Group.
3. Lookhere.Com and StopIn.Com enter into a reciprocal agreement whereby (1)

StopIn.Com is given valuable advertising space on the home page of Lookhere.Com and
(2) Lookhere.Com is given valuable advertising space on the home page of StopIn.Com.
The main source of revenue for both StopIn.Com and Lookhere.Com is sales of
advertising on their respective websites. Both companies recognize advertising revenue
received from the other company and recognize advertising expenses paid to the other
company. Accounting regulators express support for the accounting treatment applied by
these companies. Do you believe these companies should be allowed to recognize
revenue in conjunction with the advertising agreements described above? Why or why
not?
Answers:
1. It is considered a change in accounting estimate when the depreciation method for
previously recorded assets switches from the sum-of-the-years'-digits to the straight-line
approach.
When a business decides to alter the method of depreciation it employs to determine the
depreciation expense of its fixed assets, the depreciation method used to compute that
expense changes. In comparison to the straight-line technique, which uniformly
distributes the expense over the asset's useful life, the sum-of-the-years'-digits method
causes higher depreciation expense in an asset's early years of life and reduced expense in
later years.
When the business decides that the straight-line technique is a better way to figure out the
asset's depreciation expense, the adjustment is done. The previously reported financial
statements are unaffected by this modification, which solely applies to the present and
subsequent periods.
The nature of the change, the reasons for the change, and how it affects the financial
statements should all be disclosed in the footnotes to the financial statements whenever a
company modifies an accounting estimate. Additionally, it must prospectively use the
updated accounting estimate as of the change date.
2. Comprehensive Income = Net Income + Other Comprehensive Income
Other Comprehensive Income = Unrealized holding losses on available-for-sale securities

+ Foreign currency translation gain + Net change in pension assets + Unrealized holding
losses on derivative instruments
Other Comprehensive Income = [($10 - $9) x 110,000] + $60,000 + ($190,000 -

$115,000) + $11,000
Other Comprehensive Income = $110,000 + $60,000 + $75,000 + $11,000
Other Comprehensive Income = $256,000
Comprehensive Income = Net Income + Other Comprehensive Income
Comprehensive Income = $1,200,000 + $256,000
Comprehensive Income = $1,456,000
3. The income recognition generates debate. Many people think it is appropriate and
justified for both organizations to record offsetting of revenues and expenses from the
contract since the transaction fits the revenue recognition standards. Opponents of this
approach, on the other hand, raise concerns about the certainty and thoroughness of the
earning process.

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Name: Rafi Renardi Sugiono

FINANCIAL STATEMENT ANALYSIS

3. Lookhere.Com and StopIn.Com enter into a reciprocal agreement whereby (1)

2. Comprehensive Income = Net Income + Other Comprehensive Income

Other Comprehensive Income = Unrealized holding losses on available-for-sale securities

Other Comprehensive Income = [($10 - $9) x 110,000] + $60,000 + ($190,000 -

Other Comprehensive Income = $110,000 + $60,000 + $75,000 + $11,000

Other Comprehensive Income = $256,000

Comprehensive Income = Net Income + Other Comprehensive Income

Comprehensive Income = $1,200,000 + $256,000

Comprehensive Income = $1,456,000

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