Question 1

The new IFRS on financial instruments will be subject to the proper accounting for changes in accounting policy.

Accepted Answer

A) True 
 B)False

Question 2

Companies report changes in accounting estimates retrospectively.

Accepted Answer

A) True 
 B)False

Question 3

Use the following information for questions.
Ventura Corporation purchased machinery on January 1, 2009 for $630,000.The company used the sum-of-the-years'-digits method and no salvage value to depreciate the asset for the first two years of its estimated six-year life.In 2010, Ventura changed to the straight-line depreciation method for this asset.The following facts pertain:
  
-Ventura is subject to a 40% tax rate.The cumulative effect of this accounting change on beginning retained earnings is

Accepted Answer

A) $135,000. 
B) $120,000. 
C) $72,000. 
D) $0. 
A) $135,000. 
B) $120,000. 
C) $72,000. 
D) $0.

Question 4

When a company changes an accounting policy, it should report the change by reporting the cumulative effect of the change in the current year's income statement.

Accepted Answer

A) True 
 B)False

Question 5

Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period.

Accepted Answer

A) True 
 B)False

Question 6

Companies must make correcting entries for noncounterbalancing errors, even if they have closed the prior year's books.

Accepted Answer

A) True 
 B)False

Question 7

The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years.Based on this information, the accountant should

Accepted Answer

A) continue to depreciate the building over the original 50-year life. 
B) depreciate the remaining book value over the remaining life of the asset. 
C) adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. 
D) adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. 
A) continue to depreciate the building over the original 50-year life. 
B) depreciate the remaining book value over the remaining life of the asset. 
C) adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. 
D) adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

Question 8

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

Accepted Answer

A) credit to Accumulated Depreciation. 
B) debit to Retained Earnings in the amount of the difference on prior years. 
C) debit to Deferred Tax Asset. 
D) credit to Deferred Tax Liability. 
A) credit to Accumulated Depreciation. 
B) debit to Retained Earnings in the amount of the difference on prior years. 
C) debit to Deferred Tax Asset. 
D) credit to Deferred Tax Liability.

Question 9

Companies account for a change in depreciation methods as a change in accounting policy.

Accepted Answer

A) True 
 B)False

Question 10

Use the following information for questions.
On January 1, 2009, Nobel Corporation acquired machinery at a cost of $600,000.Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value.At the beginning of 2012, a decision was made to change to the double-declining balance method of depreciation for this machine.
-Assuming a 30% tax rate, the cumulative effect of this accounting change on beginning retained earnings, is

Accepted Answer

A) $67,200. 
B) $0. 
C) $78,960. 
D) $112,800. 
A) $67,200. 
B) $0. 
C) $78,960. 
D) $112,800.

Question 11

Use the following information for questions.
Ventura Corporation purchased machinery on January 1, 2009 for $630,000.The company used the sum-of-the-years'-digits method and no salvage value to depreciate the asset for the first two years of its estimated six-year life.In 2010, Ventura changed to the straight-line depreciation method for this asset.The following facts pertain:
  
-The amount that Ventura should report for depreciation expense on its 2011 income statement is

Accepted Answer

A) $120,000. 
B) $105,000. 
C) $75,000. 
D) none of the above. 
A) $120,000. 
B) $105,000. 
C) $75,000. 
D) none of the above.

Question 12

Use the following information for questions.
Bishop Co.began operations on January 1, 2010.Financial statements for 2010 and 2011 con- tained the following errors:
In addition, on December 31, 2011 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2012.No corrections have been made for any of the errors.Ignore income tax considerations.
  
-The total effect of the errors on the amount of Bishop's working capital at December 31, 2011 is understated by

Accepted Answer

A) $400,800. 
B) $316,800. 
C) $184,800. 
D) $124,800. 
A) $400,800. 
B) $316,800. 
C) $184,800. 
D) $124,800.

Question 13

Use the following information for questions.
Link Co.purchased machinery that cost $810,000 on January 4, 2009.The entire cost was recorded as an expense.The machinery has a nine-year life and a $54,000 residual value.The error was discovered on December 20, 2011.Ignore income tax considerations.
-Before the correction was made, and before the books were closed on December 31, 2011, retained earnings was understated by

Accepted Answer

A) $810,000. 
B) $726,000. 
C) $642,000. 
D) $558,000. 
A) $810,000. 
B) $726,000. 
C) $642,000. 
D) $558,000.

Question 14

Adoption of a new policy in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change.

Accepted Answer

A) True 
 B)False

Question 15

Which type of accounting change should always be accounted for in current and future periods?

Accepted Answer

A) Change in accounting policy 
B) Change in reporting entity 
C) Change in accounting estimate 
D) Correction of an error 
A) Change in accounting policy 
B) Change in reporting entity 
C) Change in accounting estimate 
D) Correction of an error

Question 16

Use the following information for questions.
Langley Company's December 31 year-end financial statements contained the following errors:
   
An insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012.The prepayment was recorded with a debit to insurance expense.In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012.There were no other errors during 2011 or 2012 and no corrections have been made for any of the errors.Ignore income tax considerations.
-Accrued salaries payable of $51,000 were not recorded at December 31, 2010.Office supplies on hand of $24,000 at December 31, 2011 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

Accepted Answer

A) 2011 net income to be understated $75,000 and December 31, 2011 retained earnings to be understated $24,000. 
B) 2010 net income and December 31, 2010 retained earnings to be understated $51,000 each. 
C) 2010 net income to be overstated $27,000 and 2011 net income to be understated $24,000. 
D) 2011 net income and December 31, 2011 retained earnings to be understated $24,000 each. 
A) 2011 net income to be understated $75,000 and December 31, 2011 retained earnings to be understated $24,000. 
B) 2010 net income and December 31, 2010 retained earnings to be understated $51,000 each. 
C) 2010 net income to be overstated $27,000 and 2011 net income to be understated $24,000. 
D) 2011 net income and December 31, 2011 retained earnings to be understated $24,000 each.

Question 17

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is correct?

Accepted Answer

A) Changes in accounting policy are always handled in the current or prospective period. 
B) Prior statements should be restated for changes in accounting estimates. 
C) A change from expensing certain costs to capitalizing these costs due to a change in the period benefited, should be handled as a change in accounting estimate. 
D) Correction of an error related to a prior period should be considered as an adjustment to current year net income. 
A) Changes in accounting policy are always handled in the current or prospective period. 
B) Prior statements should be restated for changes in accounting estimates. 
C) A change from expensing certain costs to capitalizing these costs due to a change in the period benefited, should be handled as a change in accounting estimate. 
D) Correction of an error related to a prior period should be considered as an adjustment to current year net income.

Question 19

Retrospective application refers to the application of a different accounting policy to recast previously issued financial statements-as if the new policy had always been used.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

The new IFRS on financial instruments will be subject to the proper accounting for changes in accounting policy.

Companies report changes in accounting estimates retrospectively.

When a company changes an accounting policy, it should report the change by reporting the cumulative effect of the change in the current year's income statement.

Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period.

Companies must make correcting entries for noncounterbalancing errors, even if they have closed the prior year's books.

The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years.Based on this information, the accountant should

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

Companies account for a change in depreciation methods as a change in accounting policy.

Adoption of a new policy in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change.

Which type of accounting change should always be accounted for in current and future periods?

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

Which of the following statements is correct?

Retrospective application refers to the application of a different accounting policy to recast previously issued financial statements-as if the new policy had always been used.

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

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities, Provisions, and Contingencies

Non-Current Liabilities

Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Statement of Cash Flows

Presentation and Disclosure in Financial Reporting

Filters

Exam 22: Accounting Changes and Error Analysis

The new IFRS on financial instruments will be subject to the proper accounting for changes in accounting policy.

Companies report changes in accounting estimates retrospectively.

When a company changes an accounting policy, it should report the change by reporting the cumulative effect of the change in the current year's income statement.

Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period.

Companies must make correcting entries for noncounterbalancing errors, even if they have closed the prior year's books.

The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years.Based on this information, the accountant should

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

Companies account for a change in depreciation methods as a change in accounting policy.

Adoption of a new policy in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change.

Which type of accounting change should always be accounted for in current and future periods?

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

Which of the following statements is correct?

Retrospective application refers to the application of a different accounting policy to recast previously issued financial statements-as if the new policy had always been used.

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

Financial Accounting and Accounting Standards

Conceptual Framework Underlying Financial Accounting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities, Provisions, and Contingencies

Non-Current Liabilities

Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Statement of Cash Flows

Presentation and Disclosure in Financial Reporting

Filters