Question 1

Which of the following changes in accounting principle does not require the retrospective approach?

Accepted Answer

A)  Change from the percentage-of-completion to the completed-contract method 
B)  Change of inventory method from LIFO to FIFO 
C)  Change of inventory method from FIFO to LIFO 
D)  All of these require retroactive adjustment. 
A)  Change from the percentage-of-completion to the completed-contract method 
B)  Change of inventory method from LIFO to FIFO 
C)  Change of inventory method from FIFO to LIFO 
D)  All of these require retroactive adjustment. C

Question 2

Young Corporation decided to change its depreciation policy by (1) changing from double-declining-balance depreciation, and (2) changing the estimated useful life on all automobiles used in the business from five years to four years.
Which of the following is correct concerning these two changes?

Accepted Answer

A)  Both are changes in accounting principle. 
B)  Both are changes in accounting estimate. 
C)  One is an error correction, and one is change in accounting principle. 
D)  One is a change in estimate effected through a change in accounting principle, and one is a change in estimate. 
A)  Both are changes in accounting principle. 
B)  Both are changes in accounting estimate. 
C)  One is an error correction, and one is change in accounting principle. 
D)  One is a change in estimate effected through a change in accounting principle, and one is a change in estimate. D

Question 3

Which of the following is not a justification for a change in depreciation methods?

Accepted Answer

A)  A change in the estimated useful life of an asset as a result of unexpected obsolescence 
B)  A change in the pattern of receiving the estimated future benefits from an asset 
C)  To conform to the depreciation method prevalent in a particular industry 
D)  A change in the estimated future benefits from the asset 
A)  A change in the estimated useful life of an asset as a result of unexpected obsolescence 
B)  A change in the pattern of receiving the estimated future benefits from an asset 
C)  To conform to the depreciation method prevalent in a particular industry 
D)  A change in the estimated future benefits from the asset C

Question 4

If, at the end of a period, Matthew Company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause

Accepted Answer

A)  no effect on the company's net income, working capital, and retained earnings. 
B)  the company's cost of goods available for sale, cost of goods sold, and net income to be understated. 
C)  the company's ending inventory, cost of goods available for sale, and retained earnings to be understated. 
D)  the company's ending inventory, cost of goods sold, and retained earnings to be understated. 
A)  no effect on the company's net income, working capital, and retained earnings. 
B)  the company's cost of goods available for sale, cost of goods sold, and net income to be understated. 
C)  the company's ending inventory, cost of goods available for sale, and retained earnings to be understated. 
D)  the company's ending inventory, cost of goods sold, and retained earnings to be understated.

Question 5

Ideally, managers should make accounting changes only as a result of new experience or information, or due to changes in economic conditions that demand methods of accounting that more accurately reflect such changing conditions. Managers should be attempting to achieve the closest match between reporting and economic reality.
Identify motivations for managers to make accounting changes other than the goal of achieving congruence between reporting and economic reality.

Accepted Answer

The answer of Ideally, managers should make accounting changes only...

Question 6

Which of the following is not correct regarding a change in reporting entity?

Accepted Answer

A)  Financial statements of the year in which the change in reporting entity is made should disclose the nature of the change and the reason for the change. 
B)  The effect of the change on income before extraordinary items, net income, and earnings per share amounts should be reported for all periods presented. 
C)  Financial statements presented for all prior periods must be restated. 
D)  The effect of the change on income before extraordinary items, net income, and earnings per share amounts should be reported for all periods presented and must be repeated in all periods subsequent to the period of the change. 
A)  Financial statements of the year in which the change in reporting entity is made should disclose the nature of the change and the reason for the change. 
B)  The effect of the change on income before extraordinary items, net income, and earnings per share amounts should be reported for all periods presented. 
C)  Financial statements presented for all prior periods must be restated. 
D)  The effect of the change on income before extraordinary items, net income, and earnings per share amounts should be reported for all periods presented and must be repeated in all periods subsequent to the period of the change.

Question 7

A company changes from an accounting principle that is notgenerally accepted to one that is generally accepted. The effect of the change should be reported as a

Accepted Answer

A)  change in accounting principle. 
B)  change in accounting estimate 
C)  correction of an error. 
D)  change of accounting estimate effected by a change in accounting principle. 
A)  change in accounting principle. 
B)  change in accounting estimate 
C)  correction of an error. 
D)  change of accounting estimate effected by a change in accounting principle.

Question 8

Koppell Co. made the following errors in counting its year-end physical inventories:
 
The entry to correct the accounts at the end of 2011 is

Accepted Answer

A)  Retained Earnings ................... 48,000 Cost of Goods Sold .................. 42,000
Inventory ........................ 90,000 
B)  Retained Earnings ................... 18,000 Cost of Goods Sold .................. 72,000
Inventory ........................ 90,000 
C)  Inventory .......................... 90,000 Cost of Goods Sold ............... 18,000
Retained Earnings ............... 72,000 
D)  Cost of Goods Sold .................. 198,000 Retained Earnings ................ 108,000
Inventory ........................ 90,000 
A)  Retained Earnings ................... 48,000 Cost of Goods Sold .................. 42,000
Inventory ........................ 90,000 
B)  Retained Earnings ................... 18,000 Cost of Goods Sold .................. 72,000
Inventory ........................ 90,000 
C)  Inventory .......................... 90,000 Cost of Goods Sold ............... 18,000
Retained Earnings ............... 72,000 
D)  Cost of Goods Sold .................. 198,000 Retained Earnings ................ 108,000
Inventory ........................ 90,000

Question 9

Kentucky Enterprises purchased a machine on January 2, 2010, at a cost of $120,000. An additional $50,000 was spent for installation, but this amount was charged erroneously to repairs expense. The machine has a useful life of five years and a salvage value of $20,000. As a result of the error,

Accepted Answer

A)  retained earnings at December 31, 2011, was understated by $30,000 and 2011 income was overstated by $6,000. 
B)  retained earnings at December 31, 2011, was understated by $38,000 and 2011 income was overstated by $6,000. 
C)  retained earnings at December 31, 2011, was understated by $30,000 and 2011 income was overstated by $10,000. 
D)  2010 income was understated by $50,000. 
A)  retained earnings at December 31, 2011, was understated by $30,000 and 2011 income was overstated by $6,000. 
B)  retained earnings at December 31, 2011, was understated by $38,000 and 2011 income was overstated by $6,000. 
C)  retained earnings at December 31, 2011, was understated by $30,000 and 2011 income was overstated by $10,000. 
D)  2010 income was understated by $50,000.

Question 10

Which of the following should not be reported retroactively?

Accepted Answer

A)  Use of an unacceptable accounting principle, then changing to an acceptable accounting principle 
B)  Correction of an overstatement of ending inventory made two years ago 
C)  Use of an unrealistic accounting estimate, then changing to a realistic estimate 
D)  Change from a good faith but erroneous estimate to a new estimate 
A)  Use of an unacceptable accounting principle, then changing to an acceptable accounting principle 
B)  Correction of an overstatement of ending inventory made two years ago 
C)  Use of an unrealistic accounting estimate, then changing to a realistic estimate 
D)  Change from a good faith but erroneous estimate to a new estimate

Question 11

On December 31, 2011, Prince Company appropriately changed to the FIFO cost method from the weighted-average cost method for financial statement and income tax purposes. The change will result in a $700,000 increase in the beginning inventory at January 1, 2011. Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported, the cumulative effect of this accounting change reported for the year ended December 31, 2011, is

Accepted Answer

A)  $700,000. 
B)  $350,000. 
C)  $420,000. 
D)  $280,000. 
A)  $700,000. 
B)  $350,000. 
C)  $420,000. 
D)  $280,000.

Question 12

Which of the following, if discovered by James Company in the accounting period subsequent to the period of occurrence, requires the company to report the correction of an error?

Accepted Answer

A)  The estimate of the useful life of a depreciable asset should have been revised. 
B)  A change from declining-balance depreciation method to straight-line method 
C)  Capitalization of an expense 
D)  Change in percentage of sales used for determining bad debt expense 
A)  The estimate of the useful life of a depreciable asset should have been revised. 
B)  A change from declining-balance depreciation method to straight-line method 
C)  Capitalization of an expense 
D)  Change in percentage of sales used for determining bad debt expense

Question 13

Rodney Company's December 31 year-end financial statements contained the following errors:
 
An insurance premium of $3,600 was prepaid in 2010 covering the years 2010, 2011, and 2012. The entire amount was charged to expense in 2010. In addition, on December 31, 2011, fully depreciated machinery was sold for $6,400 cash, but the sale was not recorded until 2012. There were no other errors during 2010 or 2011, and no corrections have been made for any of the errors. Ignore income tax considerations. What is the total effect of the errors on 2011 net income?

Accepted Answer

A)  Net income is understated by $12,800. 
B)  Net income is overstated by $3,600. 
C)  Net income is understated by $1,600. 
D)  Net income is overstated by $2,400. 
A)  Net income is understated by $12,800. 
B)  Net income is overstated by $3,600. 
C)  Net income is understated by $1,600. 
D)  Net income is overstated by $2,400.

Question 14

Coombs, Inc. is a calendar-year corporation whose financial statements for 2010 and 2011 included errors as follows:
 
Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2010, or December 31, 2011. Ignoring income taxes, by how much should Coombs's retained earnings be retroactively adjusted at January 1, 2012?

Accepted Answer

A)  $27,000 increase 
B)  $27,000 decrease 
C)  $7,000 decrease 
D)  $3,000 decrease 
A)  $27,000 increase 
B)  $27,000 decrease 
C)  $7,000 decrease 
D)  $3,000 decrease

Question 15

The ending inventory for Wattis Company was overstated by $6,000 in 2011. The overstatement will cause Wattis Company's

Accepted Answer

A)  retained earnings to be understated on the 2011 balance sheet. 
B)  cost of goods sold to be understated on the 2012 income statement. 
C)  cost of goods sold to be overstated on the 2011 income statement. 
D)  2012 balance sheet not to be misstated. 
A)  retained earnings to be understated on the 2011 balance sheet. 
B)  cost of goods sold to be understated on the 2012 income statement. 
C)  cost of goods sold to be overstated on the 2011 income statement. 
D)  2012 balance sheet not to be misstated.

Question 16

Lambert Enterprises acquired Callahan Company for $700,000 December 31, 2011. This amount exceeded the recorded value of Callahan Company's net assets by $150,000 on the acquisition date. The entire excess of cost over the book value of the net assets related to a piece of equipment owned by Callahan that had a remaining life of five years as of the acquisition date. The companies reported the following amounts for the 2010 and 2011:
   
Prepare the pro forma information for this acquisition required by SFAS No. 141.

Accepted Answer

The pro forma information required would

Question 17

Which of the following is not a change in reporting entity?

Accepted Answer

A)  A company acquires a subsidiary that is to be accounted for as a purchase. 
B)  A company presents consolidated or combined statements in place of statements of individual companies. 
C)  A company changes the companies included in combined financial statements. 
D)  A company changes the subsidiaries for which consolidated statements are presented. 
A)  A company acquires a subsidiary that is to be accounted for as a purchase. 
B)  A company presents consolidated or combined statements in place of statements of individual companies. 
C)  A company changes the companies included in combined financial statements. 
D)  A company changes the subsidiaries for which consolidated statements are presented.

Question 18

Which of the following is a counterbalancing error?

Accepted Answer

A)  Understated depletion expense 
B)  Bond premium underamortized 
C)  Prepaid expense adjusted incorrectly 
D)  Overstated depreciation expenses 
A)  Understated depletion expense 
B)  Bond premium underamortized 
C)  Prepaid expense adjusted incorrectly 
D)  Overstated depreciation expenses

Question 19

Which of the following types of errors will not self-correct in the next year?

Accepted Answer

A)  Accrued expenses not recognized at year-end 
B)  Accrued revenues that have not been collected not recognized at year-end 
C)  Depreciation expense overstated for the year 
D)  Prepaid expenses not recognized at year-end 
A)  Accrued expenses not recognized at year-end 
B)  Accrued revenues that have not been collected not recognized at year-end 
C)  Depreciation expense overstated for the year 
D)  Prepaid expenses not recognized at year-end

Question 20

Which of the following isnot a change in accounting principle?

Accepted Answer

A)  A change from FIFO to LIFO for inventory valuation 
B)  A change from completed-contracts to percentage-of-completion 
C)  A change from eight years to five years in the useful life of a depreciable asset 
D)  A change from double-declining-balance to straight-line depreciation 
A)  A change from FIFO to LIFO for inventory valuation 
B)  A change from completed-contracts to percentage-of-completion 
C)  A change from eight years to five years in the useful life of a depreciable asset 
D)  A change from double-declining-balance to straight-line depreciation

Which of the following changes in accounting principle does not require the retrospective approach?

Young Corporation decided to change its depreciation policy by (1) changing from double-declining-balance depreciation, and (2) changing the estimated useful life on all automobiles used in the business from five years to four years. Which of the following is correct concerning these two changes?

Which of the following is not a justification for a change in depreciation methods?

If, at the end of a period, Matthew Company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause

Which of the following is not correct regarding a change in reporting entity?

A company changes from an accounting principle that is notgenerally accepted to one that is generally accepted. The effect of the change should be reported as a

Koppell Co. made the following errors in counting its year-end physical inventories: The entry to correct the accounts at the end of 2011 is

Kentucky Enterprises purchased a machine on January 2, 2010, at a cost of $120,000. An additional $50,000 was spent for installation, but this amount was charged erroneously to repairs expense. The machine has a useful life of five years and a salvage value of $20,000. As a result of the error,

Which of the following should not be reported retroactively?

Which of the following, if discovered by James Company in the accounting period subsequent to the period of occurrence, requires the company to report the correction of an error?

The ending inventory for Wattis Company was overstated by $6,000 in 2011. The overstatement will cause Wattis Company's

Which of the following is not a change in reporting entity?

Which of the following is a counterbalancing error?

Which of the following types of errors will not self-correct in the next year?

Which of the following isnot a change in accounting principle?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters

Exam 20: Accounting Changes and Error Corrections

Which of the following changes in accounting principle does not require the retrospective approach?

Young Corporation decided to change its depreciation policy by (1) changing from double-declining-balance depreciation, and (2) changing the estimated useful life on all automobiles used in the business from five years to four years. Which of the following is correct concerning these two changes?

Which of the following is not a justification for a change in depreciation methods?

If, at the end of a period, Matthew Company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause

Which of the following is not correct regarding a change in reporting entity?

A company changes from an accounting principle that is notgenerally accepted to one that is generally accepted. The effect of the change should be reported as a

Koppell Co. made the following errors in counting its year-end physical inventories: The entry to correct the accounts at the end of 2011 is

Kentucky Enterprises purchased a machine on January 2, 2010, at a cost of $120,000. An additional $50,000 was spent for installation, but this amount was charged erroneously to repairs expense. The machine has a useful life of five years and a salvage value of $20,000. As a result of the error,

Which of the following should not be reported retroactively?

Which of the following, if discovered by James Company in the accounting period subsequent to the period of occurrence, requires the company to report the correction of an error?

The ending inventory for Wattis Company was overstated by $6,000 in 2011. The overstatement will cause Wattis Company's

Which of the following is not a change in reporting entity?

Which of the following is a counterbalancing error?

Which of the following types of errors will not self-correct in the next year?

Which of the following isnot a change in accounting principle?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters