Question 1

An accounting change that requires the retrospective approach is a change in

Accepted Answer

A)  the life of equipment from five to seven years. 
B)  depreciation method from straight-line to double-declining-balance. 
C)  the specific subsidiaries included in consolidated financial statements. 
D)  the percentage used to determine the allowance for bad debts. 
A)  the life of equipment from five to seven years. 
B)  depreciation method from straight-line to double-declining-balance. 
C)  the specific subsidiaries included in consolidated financial statements. 
D)  the percentage used to determine the allowance for bad debts.

Question 2

Barker, Inc. receives subscription payments for annual (one year) subscriptions to its magazine. Payments are recorded as revenue when received. Amounts received but unearned at the end of each of the last three years are shown below.
 
Barker failed to record the unearned revenues in each of the three years. The entry needed to correct the above errors is

Accepted Answer

A)  Retained Earnings .................. 150,000 Subscription Revenues .............. 26,000
Unearned Revenues ............... 176,000 
B)  Retained Earnings .................. 30,000 Subscription Revenues .............. 26,000
Unearned Revenues ............... 56,000 
C)  Subscription Revenues .............. 176,000 Unearned Revenues ............... 176,000 
D)  Subscription Revenues .............. 150,000 Retained Earnings .................. 26,000
Unearned Revenues ............... 176,000 
A)  Retained Earnings .................. 150,000 Subscription Revenues .............. 26,000
Unearned Revenues ............... 176,000 
B)  Retained Earnings .................. 30,000 Subscription Revenues .............. 26,000
Unearned Revenues ............... 56,000 
C)  Subscription Revenues .............. 176,000 Unearned Revenues ............... 176,000 
D)  Subscription Revenues .............. 150,000 Retained Earnings .................. 26,000
Unearned Revenues ............... 176,000

Question 3

Badger Corporation purchased a machine for $150,000 on January 1, 2010. Badger will depreciate the machine using the straight-line method using a five-year period with no residual value. As a result of an error in its purchasing records, Badger did not recognize any depreciation for the machine in its 2010 financial statements. Badger discovered the problem during the preparation of its 2011 financial statements. What amount should Badger record for depreciation expense on this machine for 2011?

Accepted Answer

A)  $0 
B)  $30,000 
C)  $37,500 
D)  $60,000 
A)  $0 
B)  $30,000 
C)  $37,500 
D)  $60,000

Question 4

For a company with a periodic inventory system, which of the following would cause income to be overstated in the period of occurrence?

Accepted Answer

A)  Overestimating bad debt expense 
B)  Understating beginning inventory 
C)  Overstated purchases 
D)  Understated ending inventory 
A)  Overestimating bad debt expense 
B)  Understating beginning inventory 
C)  Overstated purchases 
D)  Understated ending inventory

Question 5

Which of the following statements is not correct?

Accepted Answer

A)  A change from an inappropriate accounting principle to a proper one should be accounted for as an accounting error. 
B)  A change from an inappropriate accounting principle to a proper one should be accounted for as a change in accounting principle. 
C)  A change from an inappropriate accounting principle to a proper one should be accounted for retrospectively. 
D)  A change from an inappropriate accounting principle to a proper one may require an adjustment to beginning retained earnings for the earliest year reported. 
A)  A change from an inappropriate accounting principle to a proper one should be accounted for as an accounting error. 
B)  A change from an inappropriate accounting principle to a proper one should be accounted for as a change in accounting principle. 
C)  A change from an inappropriate accounting principle to a proper one should be accounted for retrospectively. 
D)  A change from an inappropriate accounting principle to a proper one may require an adjustment to beginning retained earnings for the earliest year reported.

Question 6

On January 1, 2011, Wiley Corporation changed its inventory cost flow assumption from FIFO to LIFO. The change was made for financial statement and tax reporting. Wiley's inventory values at the end of each year since inception under both methods are summarized below.
   
Ignoring income taxes, what is the amount of adjustment required in the 2011 accounts, and where would it be reported in the financial statement?

Accepted Answer

The change is an exception to the genera

Question 7

On December 31, 2011, Buckeye Corporation appropriately changed its inventory valuation method to FIFO cost from LIFO cost for both financial statement and income tax purposes. The change will result in a $140,000 increase in the beginning inventory at January 1, 2011. Assume a 30 percent income tax rate. The cumulative effect of this accounting change Buckeye for the year ended December 31, 2011, is

Accepted Answer

A)  $0. 
B)  $42,000. 
C)  $98,000. 
D)  $140,000. 
A)  $0. 
B)  $42,000. 
C)  $98,000. 
D)  $140,000.

Question 8

On January 1, 2008, Grayson Company purchased for $240,000 a machine with a useful life of ten years and no salvage value. The machine was depreciated by the double-declining-balance method, and the carrying amount of the machine was $153,600 on December 31, 2009. Grayson changed to the straight-line method on January 1, 2010. Grayson can justify the change. What should be the depreciation expense on this machine for the year ended December 31, 2011?

Accepted Answer

A)  $15,360 
B)  $19,200 
C)  $24,000 
D)  $30,720 
A)  $15,360 
B)  $19,200 
C)  $24,000 
D)  $30,720

Question 9

Since its organization on January 1, 2009, Langley Inc. failed to properly recognize accruals and prepayments. Selected accounts revealed the following information:
   
Net income reported by the company was:
   
Compute the corrected net income for the years 2009, 2010, and 2011. (Ignore income taxes.)

Accepted Answer

Langley Inc.
Correct

Question 10

At the time Fisher Corporation became a subsidiary of Ashbury Corporation, Fisher switched depreciation of its plant assets from the straight-line method to the sum-of-the-years'-digits method used by Ashbury. With respect to Fisher, this change was a

Accepted Answer

A)  change in an accounting estimate. 
B)  correction of an error. 
C)  change in accounting principle. 
D)  change in the reporting entity. 
A)  change in an accounting estimate. 
B)  correction of an error. 
C)  change in accounting principle. 
D)  change in the reporting entity.

Question 11

On January 2, 2009, McKell Company acquired machinery at a cost of $640,000. This machinery was being depreciated by the double-declining-balance method over an estimated useful life of eight years, with no residual value. At the beginning of 2011, McKell decided to change to the straight-line method of depreciation. Ignoring income tax considerations, the cumulative effect of this accounting change is

Accepted Answer

A)  $0. 
B)  $120,000. 
C)  $130,000. 
D)  $280,000. 
A)  $0. 
B)  $120,000. 
C)  $130,000. 
D)  $280,000.

Question 12

Cameron Co. began operations on January 1, 2008, at which time it acquired depreciable assets of $100,000. The assets have an estimated useful life of ten years and no salvage value.
In 2011, Cameron Co. changed from the sum-of-the-years'-digits depreciation method to the straight-line depreciation method.
Required:
Determine the depreciation expense for 2011 and prepare the appropriate journal entry.

Accepted Answer

Accumulated depreciation at January 1, 2

Question 13

Johnson's Distributing purchased equipment on January 1, 2008. The equipment cost $124,000 with a salvage value of $12,000 and an estimated life of 8 years. Initially, Johnson depreciated the equipment using the sum-of-the-years'-digits method. On January 1, 2011, the company elected to change to the straight-line method of depreciation.
Required:
Determine the depreciation expense for 2011 and prepare the appropriate journal entry.

Accepted Answer

Accumulated depreciation at 1/1/2011:
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Question 14

A change from an accelerated depreciation method to the straight-line depreciation method should be accounted for as a

Accepted Answer

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

Question 15

Which of the following is correct regarding the provisions of IFRS No. 8 on accounting changes and error corrections?

Accepted Answer

A)  IFRS No. 8 requires that correction of an error be made only by restatement of all prior periods presented. 
B)  IFRS No. 8 allows correction of an error to be made either through restatement of all period periods presented or by reflecting the effect of the correction in income of the period in which the error was discovered without restating previously reported results. 
C)  IFRS No. 8 requires correction of an error to be made only by reflecting the effect of the correction in income of the period in which the error was discovered without restating previously reported results. 
D)  IFRS No. 8 reflects a preference for not restating prior results in reporting accounting changes and error corrections. 
A)  IFRS No. 8 requires that correction of an error be made only by restatement of all prior periods presented. 
B)  IFRS No. 8 allows correction of an error to be made either through restatement of all period periods presented or by reflecting the effect of the correction in income of the period in which the error was discovered without restating previously reported results. 
C)  IFRS No. 8 requires correction of an error to be made only by reflecting the effect of the correction in income of the period in which the error was discovered without restating previously reported results. 
D)  IFRS No. 8 reflects a preference for not restating prior results in reporting accounting changes and error corrections.

Question 16

Which of the following would not be accounted for as a change in accounting principle?

Accepted Answer

A)  Change from the first-in, first-out method to the last-in, first-out method of inventory pricing 
B)  Change from the last-in, first-out method to the first-in, first-out method of inventory pricing 
C)  Change from completed-contract accounting to percentage-of-completion 
D)  Change from straight-line method to accelerated method of depreciation 
A)  Change from the first-in, first-out method to the last-in, first-out method of inventory pricing 
B)  Change from the last-in, first-out method to the first-in, first-out method of inventory pricing 
C)  Change from completed-contract accounting to percentage-of-completion 
D)  Change from straight-line method to accelerated method of depreciation

Question 17

An example of an item that should be reported as a prior period adjustment is the

Accepted Answer

A)  collection of previously written off accounts receivable. 
B)  payment of taxes resulting from examination of prior years' income tax returns. 
C)  correction of an error in financial statements of a prior year. 
D)  receipt of insurance proceeds for damage to a building sustained in a prior year. 
A)  collection of previously written off accounts receivable. 
B)  payment of taxes resulting from examination of prior years' income tax returns. 
C)  correction of an error in financial statements of a prior year. 
D)  receipt of insurance proceeds for damage to a building sustained in a prior year.

Question 18

Which of the following is not an example of an accounting error, as distinguished from a change in accounting principle or change in accounting estimate?

Accepted Answer

A)  Misstatement of assets, liabilities, or owners' equity 
B)  Incorrect classification of an expenditure as between expense and an asset 
C)  Failure to recognize accruals and deferrals 
D)  Recognition of a gain on disposal of fully depreciated property 
A)  Misstatement of assets, liabilities, or owners' equity 
B)  Incorrect classification of an expenditure as between expense and an asset 
C)  Failure to recognize accruals and deferrals 
D)  Recognition of a gain on disposal of fully depreciated property

Question 19

The correction of an error in the financial statements of a prior period should be reflected, net of applicable income taxes, in the current

Accepted Answer

A)  income statement after income from continuing operations and before extraordinary items. 
B)  income statement after income from continuing operations and after extraordinary items. 
C)  retained earnings statement after net income but before dividends. 
D)  retained earnings statement as an adjustment of the opening balance. 
A)  income statement after income from continuing operations and before extraordinary items. 
B)  income statement after income from continuing operations and after extraordinary items. 
C)  retained earnings statement after net income but before dividends. 
D)  retained earnings statement as an adjustment of the opening balance.

Question 20

Which of the following is characteristic of a change in accounting principle?

Accepted Answer

A)  Requires the reporting of pro forma amounts for prior periods 
B)  Does not affect the financial statements of prior periods 
C)  Never needs to be disclosed 
D)  Should be reported by retrospectively adjusting the financial statements for all years reported, and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported 
A)  Requires the reporting of pro forma amounts for prior periods 
B)  Does not affect the financial statements of prior periods 
C)  Never needs to be disclosed 
D)  Should be reported by retrospectively adjusting the financial statements for all years reported, and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported

An accounting change that requires the retrospective approach is a change in

For a company with a periodic inventory system, which of the following would cause income to be overstated in the period of occurrence?

Which of the following statements is not correct?

Since its organization on January 1, 2009, Langley Inc. failed to properly recognize accruals and prepayments. Selected accounts revealed the following information: Net income reported by the company was: Compute the corrected net income for the years 2009, 2010, and 2011. (Ignore income taxes.)

At the time Fisher Corporation became a subsidiary of Ashbury Corporation, Fisher switched depreciation of its plant assets from the straight-line method to the sum-of-the-years'-digits method used by Ashbury. With respect to Fisher, this change was a

A change from an accelerated depreciation method to the straight-line depreciation method should be accounted for as a

Which of the following is correct regarding the provisions of IFRS No. 8 on accounting changes and error corrections?

Which of the following would not be accounted for as a change in accounting principle?

An example of an item that should be reported as a prior period adjustment is the

Which of the following is not an example of an accounting error, as distinguished from a change in accounting principle or change in accounting estimate?

The correction of an error in the financial statements of a prior period should be reflected, net of applicable income taxes, in the current

Which of the following is characteristic of 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

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Exam 20: Accounting Changes and Error Corrections

An accounting change that requires the retrospective approach is a change in

For a company with a periodic inventory system, which of the following would cause income to be overstated in the period of occurrence?

Which of the following statements is not correct?

Since its organization on January 1, 2009, Langley Inc. failed to properly recognize accruals and prepayments. Selected accounts revealed the following information: Net income reported by the company was: Compute the corrected net income for the years 2009, 2010, and 2011. (Ignore income taxes.)

At the time Fisher Corporation became a subsidiary of Ashbury Corporation, Fisher switched depreciation of its plant assets from the straight-line method to the sum-of-the-years'-digits method used by Ashbury. With respect to Fisher, this change was a

A change from an accelerated depreciation method to the straight-line depreciation method should be accounted for as a

Which of the following is correct regarding the provisions of IFRS No. 8 on accounting changes and error corrections?

Which of the following would not be accounted for as a change in accounting principle?

An example of an item that should be reported as a prior period adjustment is the

Which of the following is not an example of an accounting error, as distinguished from a change in accounting principle or change in accounting estimate?

The correction of an error in the financial statements of a prior period should be reflected, net of applicable income taxes, in the current

Which of the following is characteristic of 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