Question 1

When a firm decides to change an accounting principle, but does not have sufficient information to use the retrospective approach, it may ________.

Accepted Answer

A)  estimate the numbers to do so 
B)  declare the change to be impractical 
C)  be forced to abandon the change 
D)  use the prospective approach 
A)  estimate the numbers to do so 
B)  declare the change to be impractical 
C)  be forced to abandon the change 
D)  use the prospective approach

Question 2

Humphrey Contractors purchased customized equipment in January, 2017 for $620,000. The manufacturer warranted the equipment for six years. Humphrey used double-declining balance depreciation with a useful life of eight years and no salvage value. After two full years, he now believes that the equipment will only last a total of five years. Compute his depreciation expense for 2019 if he switches to straight-line depreciation. (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)

Accepted Answer

A)  $77,500 
B)  $93,000 
C)  $116,250 
D)  $124,000 
A)  $77,500 
B)  $93,000 
C)  $116,250 
D)  $124,000

Question 3

Butler Products decided in 2020 to change inventory methods to more effectively report its results of operations. In the past, management has measured its ending inventories by the average-cost method and they now believe that FIFO is a better representation of its profitability. $$\begin{array} { c c c } 
 \underline{\text { Year Ended } }& \underline{ \text { FIFO Inventory }} & \underline{ \text { Average-Cost Inventory} } \
\text { December 31,2018 } & \$ 250,000 & \$ 195,000 \
\text { December 31, 2019 } & 390,000 & 329,000 \
\text { December 31,2020 } & 240,000 & 190,000
\end{array}$$
 Ignoring income tax, which one of the following journal entries correctly records the change in the accounting principle at January 1, 2020?

Accepted Answer

A)  No journal entry needed for a prospective application of the change in principle. 
B)  $\begin{array}{llcc}
  \text {Retained Earnings  } &61,000  \
\text { Inventory }&&61,000 \
\end{array}$ 
C)  $\begin{array}{llcc}
  \text {  Inventory} &61,000 \
 \text {Retained Eamings  }&&61,000 \
\end{array}$ 
D)  $\begin{array} {ll} 
\text { Inventory }&56,000 \
\text { Retained Earnings }&&56,000
\end{array}$ 
A)  No journal entry needed for a prospective application of the change in principle. 
B)  $\begin{array}{llcc}
  \text {Retained Earnings  } &61,000  \
\text { Inventory }&&61,000 \
\end{array}$ 
C)  $\begin{array}{llcc}
  \text {  Inventory} &61,000 \
 \text {Retained Eamings  }&&61,000 \
\end{array}$ 
D)  $\begin{array} {ll} 
\text { Inventory }&56,000 \
\text { Retained Earnings }&&56,000
\end{array}$

Question 4

There are four types of accounting changes - principles, estimates, entities and errors.

Accepted Answer

A) True 
 B)False

Question 5

The auditor for Universal Tools, Inc. discovered in 2019 that the warranty liability account showed a $25,000 debit balance. She investigated and discovered that the 2% estimate based on sales for warranty expense was recorded and understated, and it was more likely 3.5%. Sales for 2019 were $6,000,000. What is the appropriate journal entry as a result of this discovery?

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Warranty Liability } & 25,000 & \
\hline \text { Warranty Expense } & & 25,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Warranty Expense } & 90,000 & \
\hline \text { Warranty Liability } & & 90,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Warranty Liability } & 90,000 & \
\hline \text { Warranty Expense } & & 90,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Warranty Expense } & 210,000 & \
\hline \text { Warranty Liability } & & 210,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | r | r | } 
\hline \text { Warranty Liability } & 25,000 & \
\hline \text { Warranty Expense } & & 25,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | r | r | } 
\hline \text { Warranty Expense } & 90,000 & \
\hline \text { Warranty Liability } & & 90,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Warranty Liability } & 90,000 & \
\hline \text { Warranty Expense } & & 90,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Warranty Expense } & 210,000 & \
\hline \text { Warranty Liability } & & 210,000 \
\hline
\end{array}$$

Question 6

Peoples Corporation purchased a building on December 29, 2014 that cost $1,400,000 and occupied it on January 2, 2015. The owner estimated that the building would last 40 years with a salvage value of $150,000 using straight-line depreciation. In early 2018, Mr. Peoples learned that due to a permanent highway closure, the company needs to relocate at the end of 2020. He believes that the salvage value of the building at that time will be $800,000. Compute the amount of depreciation to record during 2018, and each of the two years thereafter. (Round your final answer to the nearest dollar.)

Accepted Answer

A)  $31,250 
B)  $200,000 
C)  $168,750 
D)  $150,000 
A)  $31,250 
B)  $200,000 
C)  $168,750 
D)  $150,000

When a firm decides to change an accounting principle, but does not have sufficient information to use the retrospective approach, it may ________.

There are four types of accounting changes - principles, estimates, entities and errors.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

The Statement of Cash Flows

Filters

Exam 21: Accounting Corrections and Error Analysis

When a firm decides to change an accounting principle, but does not have sufficient information to use the retrospective approach, it may ________.

There are four types of accounting changes - principles, estimates, entities and errors.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

The Statement of Cash Flows

Filters