Exam 23: Accounting for Changes and Errors

Exhibit 23-4 Bonnie Company's year-end December 31, 2010, financial statements contained the following errors: Ending inventory on December 31,2010 , was overstated by $\$ 60,000$ . Depre ciation expense was underst at ed by $\$ \sigma, 000$ . A two-year insurance policy for 2010 and 2011 in the amount of $\$ 12,000$ was entirely expensed in 2010. Investments in common stock of other companieswere sold in 2010 at a gain of $\$ 8,000$ , but the sale was not recorded until 2011 - Refer to Exhibit 23-4.What is the effect of the above errors on 2010 net income?

The accounting changes identified by current GAAP include all of the following except

On January 1, 2010, Willis Company acquired equipment at a cost of $400, 000.Willis used the double-declining-balance method to depreciate the equipment with a ten-year life and no salvage value.On January 1, 2012, Willis changed to straight-line depreciation for this equipment, and the IRS accepted this change as being eligible as a change in accounting estimate with prospective treatment.Assuming an income tax rate of 30%, the restatement of January 1, 2012 retained earnings is

Brockway, Inc.purchased some equipment on January 1, 2010, for $300, 000 that had a five-year useful life and no salvage value.Brockway used double-declining-balance depreciation for both financial reporting and income tax purposes.On January 1, 2012, Brockway changed to the straight-line depreciation method for this equipment and can justify the change.Brockway will continue to use double-declining balance depreciation for income tax reporting.Brockway's income tax rate is 30%.Assuming Brockway's 2012 income before depreciation and tax is $800, 000, Brockway's net income for 2012 would be

Prospective adjustments are expected to

Exceptions exist in the retrospective restatement requirements when accounting for errors under GAAP IFRS I. No No II. No Yes III. Yes Yes IV. Yes No