Exam 23: Accounting for Changes and Errors

A change in accounting estimate effected by a change in accounting principle should be reported as

Elizabeth Company discovered the following errors in 2010: Ending inventory at December 31,2009 , was understated by $\$ 2,000$ . Accrued expenses of $\$ 3,000$ were not recorded at December 31,2009 Elizabeth reported net income of $35, 000 for the year 2009.The corrected net income (ignoring income taxes)for 2009 should be

Exhibit 23-6 Nora Company has a fiscal year ending on December 31.Its financial statements for the years ended December 31, 2010 and 2011, contained the following errors: 2010 2011 Ending inventory \ 9,000 understated \ 15,000 overstated Bad debt expense 2,000 overstated 1,000 understated - Assume no correcting entries have been made. Refer to Exhibit 23-6.By how much was Nora's 2011 net income overstated or understated?

When making a retrospective adjustment, all of the following steps are included except

Exhibit 23-3 Kathy Company acquired a truck on January 1, 2010, for $140, 000.The truck had an estimated useful life of five years with no salvage value.Kathy used straight-line depreciation for the truck.On January 1, 2011, Kathy revises the estimated useful life of the truck.Kathy made the accounting change in 2011 to reflect the extended useful life. - Refer to Exhibit 23-3.If the revised estimated useful life of the truck is a total of eight years, Kathy should report in its 2011 income statement depreciation expense of

An understatement of reported net income for the current year may result from

On January 1, 2010, the MMA Company purchased a machine for $36, 000 that had a ten-year estimated useful life and no estimated salvage value.At the start of the seventh year of use, a new energy saving device was added to the machine that extended its original useful life an additional two years.This change should be accounted for in the seventh year by

If consolidated statements are presented for the first time instead of statements of several individual companies, this change should be accounted for

A retrospective adjustment requires a change in the

Exhibit 23-2 On January 1, 2010, Michelle, Inc.purchased a machine for $48, 000.Eight-year, straight-line depreciation with no salvage value was used through December 31, 2013.On January 1, 2014, it was estimated that the total useful life of the machine from acquisition date was ten years. - Refer to Exhibit 23-2.The adjusting entry that should be made on January 1, 2014, will be in the amount of

On January 1, 2010, Arlene Company bought a machine for $60, 000.It was then estimated that the useful life of the machine would be eight years with a salvage value of $8, 000.On January 1, 2014, it was decided that the machine's total life from acquisition date should have been only six years with a salvage value of only $2000.The company used straight-line depreciation. Required: a. If an adjusting entry is necessary on January 1,2014 , prepare it. b. Compute depreciation expense for 2014.

During a year-end evaluation of the financial records of the Gretchen Company for the year ended December 31, 2010, the following was discovered: Inventory on Januaty 1,2010, was understated by $\$ 6,000$ . Invent ofy on December 31,2010 , was under st at ed by $\$ 18,000$ . Rent of $\$ 20,000$ collected in advance on December 29,2010 , was included in income for 2010. A probable, reasonably estimated contingent liability of $\$ 30,000$ was not recorded as of December 31,2010 Net income for 2010 (before any of the above items)was $100, 000.The corrected net income, ignoring income taxes, for 2010 should be

Current GAAP defines three types of changes: a. Changes in accounting principle b. Changesin accounting estimate c. Changes in reporting entity Define each item, give an example, and describe how it should be accounted for.

When changing from LIFO to FIFO, the least likely result would be

Exhibit 23-6 Nora Company has a fiscal year ending on December 31.Its financial statements for the years ended December 31, 2010 and 2011, contained the following errors: 2010 2011 Ending inventory \ 9,000 understated \ 15,000 overstated Bad debt expense 2,000 overstated 1,000 understated - Assume no correcting entries have been made. Refer to Exhibit 23-6.By how much was Nora's 2010 net income overstated or understated?

Which statement concerning accounting for accounting changes and errors is not true?

Arguments in favor of the retrospective application method include

On December 31, 2010, the Molly Company recognized $12, 000 in revenue from rent of $5, 000 due in 2011 and $7, 000 due in 2012, all collected in advance from another company.Ignoring income taxes, if this error is not detected

On January 1, 2010, Pamela Company purchased equipment for $48, 000.The estimated life was five years and the salvage value was estimated at $8, 000.On January 1, 2012, it was determined that the equipment's total useful life should have been estimated at seven years and the salvage value should have been estimated at only $4, 000.The company used straight-line depreciation. Required:

The December 31, 2010, ending inventory failed to include $10, 000 of inventory that was received on December 27, 2010.The purchase on account was, however, properly recorded on the date of delivery.What effect will this error have on the December 31, 2010, assets, liabilities, and net income for the year then ended? Assets Liabilities Net Income I. overstated overstated no effect II. understated understated no effect III. understated no effect understated IV understated inderstated inderstate