Exam 21: Accounting Changes and Error Analysis

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 effect of the errors on the balance of Cheyenne's retained earnings at December 31, 2017?

Retrospective application is required for all

Which of the following statements is correct?

Which type of accounting change may be accounted for in current and future periods only?

One condition required by IFRS is that a voluntary change in accounting policy must result in information that is

Which of the following is NOT considered a change in accounting policy?

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. -Assuming that the direct effects of this change are limited to the effect on depreciation and the related tax provision, and that the income tax rate for all years since the machine was purchased was 30%, what should be reported in the income statement for calendar 2017 as the cumulative effect on prior years of changing the estimated useful life of the machine?

A publicly accountable enterprise changes from straight-line depreciation to double declining balance.Management feels that this will result in equally reliable and more relevant information; thus it will be treated as a change in accounting policy.The entry to record this change should include a

Use the following information for questions. On January 2, 2015, Beaver Corp.purchased machinery for $135,000.The entire cost was incorrectly recorded as an expense.The machinery has a nine-year life and a $9,000 residual value.Beaver uses straight-line depreciation for all its plant assets.The error was not discovered until May 1, 2017, and the appropriate corrections were made.Ignore income tax considerations. -Before the corrections were made, retained earnings was understated by

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 2017 net income is

Which of the following is NOT considered to be a change in accounting policy?

On January 1, 2013, Plover Ltd.purchased a machine for $330,000 and depreciated it using the straight-line method with an estimated useful life of eight years with no residual value.On January 1, 2016, Plover determined that the machine had a useful life of only six years from the date of acquisition, but will have a residual value of $30,000.An accounting change was made in 2016 to reflect these additional facts.At December 31, 2017, the accumulated depreciation for this machine should have a balance of

When a company decides to switch from deferring development costs to expensing them immediately, this change should probably be treated as a

On January 1, 2014, Detroit Ltd.bought machinery for $500,000.They used straight-line depreciation for this machinery, over an estimated useful life of ten years, with no residual value.At the beginning of 2017, Detroit decided the estimated useful life of this machinery was only eight years (from the date of acquisition), still with no residual value.For calendar 2017, the depreciation expense for this machinery is

A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year end.This merchandise was also omitted from the year-end physical count.How will these errors affect assets, liabilities, and shareholders' equity at year end and net income for the year?

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 the amount of Cheyenne's working capital at December 31, 2017?

Stockton Ltd.changed its inventory system from FIFO to average cost.What type of accounting change does this represent?

When an entity is first transitioning to IFRS, any adjustments required to bring GAAP measures in line with IFRS

Eagle Corp.is a calendar-year corporation whose financial statements for 2016 and 2017 included errors as follows: Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2016 or December 31, 2017.Ignoring income taxes, by how much should Eagle's retained earnings be retrospectively adjusted at January 1, 2018?

Which of the following should be given retrospective treatment?