Exam 22: Accounting Changes and Error Analysis

Accrued salaries payable of $51,000 were not recorded at December 31, 2014. Office supplies on hand of $29,000 at December 31, 2015 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause

Both IFRS and U.S. GAAP allow that if determining the effect of a change in accounting principle is considered impracticable, then a company should report the effect of the change in the period in which it believes it practicable to do so.

Use the following information for questions 44 and 45. Dream Home Inc., a real estate developing company, was accounting for its long-term contracts using the completed contract method prior to 2015. In 2015, it changed to the percentage-of-completion method. The company decided to use the same for income tax purposes. The tax rate enacted is 40%. Income before taxes under both the methods for the past three years appears below. -Which of the following will be included in the journal entry made by Dream Home to record the income effect?

Use the following information for questions 55 and 56. Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/14 and 12/31/15 contained the following errors: -Assume that the 2014 errors were not corrected and that no errors occurred in 2013. By what amount will 2014 income before income taxes be overstated or understated?

IFRS requires that any indirect effect of a change in accounting policy, such as increased royalty payments, be recognized in income in the year of the change in policy.

When changing from the equity method to the fair value method, a company must eliminate the balance in Unrealized Holding Gain or Loss.

Haystack, Inc. owns 30% of the outstanding stock of Hallmark, Inc. and accordingly uses the equity method to account for its investment. The stock was purchased on January 1, 2015 for $880,000. During the year ended December 31, 2015, Hallmark, Inc. reported the following: Dividends declared and paid \ 400,000 Net income 2,400,000 Haystack, Inc. uses the FIFO method for costing its inventories, while Hallmark, Inc. uses the LIFO method to conform with other companies in its industry. Haystack, Inc. determines that if Hallmark, Inc. had used the FIFO method, its income would have been $350,000 higher during 2015. What is the balance in the Investment in Hallmark, Inc. that will be reported on Haystack, Inc.'s balance sheet at December 31, 2015 assuming Haystack, Inc. follows U.S. GAAP for its external financial reporting?

Which of the following is not a retrospective-type accounting change?

Which of the following disclosures is required for a change from LIFO to FIFO?

On January 1, 2012, Neal Corporation acquired equipment at a cost of $720,000. Neal adopted the sum-of-the-years'-digits method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for this equipment. The depreciation expense for 2015 would be

Counterbalancing errors do not include

A company changes from the straight-line method to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change will include a

Changing the cost or equity method of accounting for investments is an example of a change in reporting entity.

Use the following information for questions 66 and 67. Ernst Company purchased equipment that cost $2,250,000 on January 1, 2014. The entire cost was recorded as an expense. The equipment had a nine-year life and a $90,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2016. Ernst is subject to a 40% tax rate. -Before the correction was made and before the books were closed on December 31, 2016, retained earnings was understated by

Use the following information for questions 61 through 63. Bishop Co. began operations on January 1, 2014. Financial statements for 2014 and 2015 con- tained the following errors: In addition, on December 31, 2015 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2016. No corrections have been made for any of the errors. Ignore income tax considerations. -The total effect of the errors on Bishop's 2015 net income is

On January 1, 2014, Janik Corp. acquired a machine at a cost of $700,000. It is to be depreciated on the straight-line method over a five-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Janik's 2014 financial statements. The oversight was discovered during the preparation of Janik's 2015 financial statements. Depreciation expense on this machine for 2015 should be

If an FASB standard creates a new principle, expresses preference for, or rejects a specific accounting principle, the change is considered clearly acceptable.

When it is impossible to determine whether a change in principle or change in estimate has occurred, the change is considered a change in estimate.

On January 1, 2015, Frost Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $700,000 increase in the January 1, 2015 inventory. Assume that the income tax rate for all years is 30%. The cumulative effect of the accounting change should be reported by Frost in its 2015

An example of a correction of an error in previously issued financial statements is a change