Question

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Answer

Step 1 of 2
For each of the given situations, we'll discuss the effects of the change on both the
balance sheet and the income statement:
Situation 1: Cash Basis to Accrual Method for Revenue Recognition

Expalantion

Balance Sheet:
Accounts receivable will likely increase because under the accrual method, revenue
is recognized when earned (even if not received), hence recognizing any amounts
due from customers.
Retained earnings might change because of the cumulative effect of the change
on prior periods if the change is applied retrospectively.
Income Statement:
Revenues may be higher or lower than under the cash basis, depending on the
difference between cash received and revenues earned during the year.
Expenses related to revenues (like cost of sales) will also be recognized when the
related revenue is recognized, which could affect net income.

Step 2 of 2
Situation 2: Change from FIFO to Average-Cost for Inventories
Balance Sheet:
Inventory value might change, as average-cost might lead to a different inventory
valuation than FIFO, especially if inventory costs have been fluctuating.
Retained earnings will adjust due to the cumulative effect of the change on prior
periods, assuming the change is applied retrospectively.
Income Statement:
Cost of goods sold might change because the cost assigned to items sold may
differ under the average-cost method as opposed to the FIFO method.
Consequently, net income will also change depending on the direction and
magnitude of the change in the cost of goods sold.
Situation 3: Reduction of Depreciable Lives of Fixed Assets by 5 Years
Balance Sheet:
Accumulated depreciation will increase, and thus, the carrying amount of fixed
assets will decrease because assets will be depreciated over a shorter life.
Retained earnings might decrease due to the cumulative effect of the change on
prior periods if applied retrospectively.
Income Statement:
Depreciation expense will increase because the remaining book value of assets will
be spread over a shorter remaining life.
T his increase in depreciation expense will reduce the net income for the year.

Expalantion

It's important to note that for each of these changes, the company should disclose
the nature and reason for the change, as well as the effects of the change, in the
footnotes to the financial statements. T his ensures that users of the financial
statements are fully informed about the changes and can make informed decisions
based on the financial information.

Final Answer
here's a more concise version of the answer:
Situation 1: Cash to Accrual for Revenue
Balance Sheet: Increase in accounts receivable.
Income Statement: Revenue and related expenses might vary based on timing.
Situation 2: FIFO to Average-Cost for Inventories
Balance Sheet: Inventory value and retained earnings might change.
Income Statement: Changes in cost of goods sold, affecting net income.
Situation 3: Reduction of Depreciable Lives by 5 Years
Balance Sheet: Decrease in carrying amount of fixed assets.
Income Statement: Higher depreciation expense, reducing net income.