Exam 22: Accounting Changes and Error Analysis

Which of the following disclosures is not required for a change from average cost to FIFO?

On January 1, 2009, Neal Corporation acquired equipment at a cost of $540,000.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 2012, a decision was made to change to the straight-line method of depreciation for this equipment.The depreciation expense for 2012 would be

Under U.S.GAAP, the impracticality exception applies both to changes in accounting policies and to the correction of errors.

On December 31, 2011 Dean Company changed its method of accounting for inventory from the average cost method to the FIFO method.This change caused the 2011 beginning inventory to increase by $420,000.The cumulative effect of this accounting change to be reported for the year ended 12\31\11, assuming a 40% tax rate, is

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 Bishop's 2011 net income is

Which of the following is not treated as a change in accounting policy?

Use the following information for questions. Ernst Company purchased equipment that cost $750,000 on January 1, 2010.The entire cost was recorded as an expense.The equipment had a nine-year life and a $30,000 residual value.Ernst uses the straight-line method to account for depreciation expense.The error was discovered on December 10, 2012.Ernst is subject to a 40% tax rate. -Ernst's net income for the year ended December 31, 2010, was understated by

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: -During 2011, a construction company changed from the cost-recovery method to the percentage-of-completion method for accounting purposes but not for tax purposes.Gross profit figures under both methods for the past three years appear below: Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of

Lanier Company began operations on January 1, 2010, and uses the FIFO method in costing its raw material inventory.Management is contemplating a change to the average cost method and is interested in determining what effect such a change will have on net income.Accordingly, the following information has been developed: Based upon the above information, a change to the average cost method in 2011 would result in net income for 2011 of

A change in accounting policy is a change that occurs as the result of new information or additional experience.

An income statement classification error has no effect on the statement of financial position and no effect on net income.

The ISAB is silent on the application of the direct effects of a change in accounting policy.

The requirements for disclosure are the same whether a change is voluntary or is mandated by the issuance of a new IFRS.

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. -The amount that Nobel should record as depreciation expense for 2012 is

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. -What is the total net effect of the errors on Langley's 2011 net income?

Heinz Company began operations on January 1, 2010, and uses the FIFO method in costing its raw material inventory.Management is contemplating a change to the average cost method and is interested in determining what effect such a change will have on net income.Accordingly, the following information has been developed: Based on the above information, a change to the average cost method in 2011 would result in net income for 2011 of

Equipment was purchased at the beginning of 2009 for $204,000.At the time of its purchase, the equipment was estimated to have a useful life of six years and a residual value of $24,000.The equipment was depreciated using the straight-line method of depreciation through 2011.At the beginning of 2012, the estimate of useful life was revised to a total life of eight years and the expected residual value was changed to $15,000.The amount to be recorded for depreciation for 2012, reflecting these changes in estimates, is

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a