Exam 21: Accounting Changes and Error Analysis

On January 1, 2017, Robin Ltd.changed its inventory valuation method from weighted-average cost to FIFO for financial statement and income tax purposes, to make their reporting as reliable and more relevant.The change resulted in a $600,000 increase in the beginning inventory at January 1, 2017.Assume a 25% income tax rate.The cumulative effect of this accounting change reported for the year ended December 31, 2017 is

Use the following information for questions. Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors: An insurance premium of $3,600 was prepaid in 2016 covering the calendar years 2016, 2017, and 2018.This had been debited to insurance expense.In addition, on December 31, 2017, fully depreciated machinery was sold for $1,900 cash, but the sale was not recorded until 2018.There were no other errors during 2017 or 2018 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 Cheyenne's 2017 net income?

Use the following information for questions. Fairfax Inc.began operations on January 1, 2016.Financial statements for 2016 and 2017 contained the following errors: In addition, on December 31, 2017 fully depreciated equipment was sold for $7,200, but the sale was NOT recorded until 2018.No corrections have been made for any of the errors.Ignore income tax considerations. -The total effect of the errors on Fairfax's working capital at December 31, 2017 is that working capital is understated by

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

Counterbalancing errors do NOT include

On January 1, 2015, Missoula Corporation bought machinery for $800,000.They used double declining balance depreciation for this asset, with an estimated life of eight years, and an estimated $200,000 residual value.At the beginning of 2018, Missoula decided to change to the straight-line method of depreciation for this equipment, and treated the change as a change in estimate.For calendar 2018, the depreciation expense for this machinery is

On January 1, 2015, Reno Inc.purchased a machine for $150,000.The machine has an estimated five year life, and no residual value.Double declining balance depreciation has been used for financial statement reporting and CCA for income tax reporting.Effective January 1, 2018, Reno decided to change to straight-line depreciation for this machine, and treated the change as a change in accounting policy.For calendar 2018, Reno's pre-tax income before depreciation on this asset is $125,000.Their income tax rate has been 30% for many years.What net income should Reno report for calendar 2018?

Under IFRS, which of the following disclosures is NOT required for the correction of an accounting error?

For accounting changes, which of the following is NOT allowed?

On January 1, 2017, Chickadee Corp.changed its inventory costing from FIFO to average cost for financial statement and income tax purposes, to make their reporting as reliable and more relevant.The change resulted in a $400,000 increase in the beginning inventory at January 1, 2017.Assume a 30% income tax rate.The cumulative effect of this accounting change should be reported by Chickadee in its 2017

Which of the following is (are)the proper time period(s)to record the effects of a change in accounting estimate?

On December 31, 2017, the bookkeeper at Thrush Corp.did not record special insurance costs that had been incurred (but not yet paid), related to a building that Thrush Corp.is constructing.What is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2017 statement of financial position?

Which of the following alternative accounting methods is(are)allowed by ASPE and IFRS for reporting accounting changes?

The underlying principle of the retrospective application method is to

Use the following information for questions. Minor Corp.purchased a machine on January 1, 2014, for $600,000.The machine is being depreciated on a straight-line basis, using an estimated useful life of six years and no residual value.On January 1, 2017, Minor determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no residual value.An accounting change was made in 2017 to reflect this additional information. -What is the amount of depreciation expense on this machine that should be reported in Minor's income statement for calendar 2017?

The service life of a building that has been depreciated for 30 years of an originally estimated 50-year life (no residual value)has been revised to an estimated remaining life of 10 years.Based on this information, the accountant should

On January 1, 2014, Wren Corp.purchased a patent for $238,000.The patent is being amortized straight-line with no residual value over its remaining legal life of 15 years.At the beginning of 2017, however, Wren determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition.What amount should be reported in the statement of financial position for the patent, net of accumulated amortization, at December 31, 2017?

Use the following information for questions. Fairfax Inc.began operations on January 1, 2016.Financial statements for 2016 and 2017 contained the following errors: In addition, on December 31, 2017 fully depreciated equipment was sold for $7,200, but the sale was NOT recorded until 2018.No corrections have been made for any of the errors.Ignore income tax considerations. -The total effect of the errors on Fairfax's retained earnings at December 31, 2017 is that the balance is understated by

Which of the following is NOT considered to be an accounting error?

Which of the following is NOT considered to be an accounting change?