Exam 9: Accounting Changes and Error Analysis

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

On January 1, 2019, Condor Corp. acquired a machine for $ 200,000. It is to be depreciated straight line over five years, with no residual value. Because of a bookkeeping error, no depreciation was recognized in Condor's 2019 financial statements. The oversight was discovered during the preparation of Condor's 2020 financial statements. Depreciation expense on this machine for 2020 should be a) $ 0. b) $ 40,000. c) $ 50,000. d) $ 80,000.

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

Correction of errors in prior years Goldfinch Inc. reported net incomes for the last three years as follows: In reviewing the accounts in 2021 (after the books for the prior year had been closed), you find that the following errors have been made: Instructions a) Calculate corrected net incomes for 2018, 2019, and 2020. b) Prepare the entry required in 2021 to correct the books. Ignore income taxes. Show any calculations.

Which of the following should be given retrospective treatment?

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

On January 1, 2020, Miner 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 $ 600,000 increase in the beginning inventory at January 1, 2020. Assume a 30% income tax rate. The cumulative effect of this accounting change should be reported by Chickadee in its 2020

Effects of errors on net income Hummingbird Corp. began operations on January 1, 2019. Financial statements for 2019 and 2020 contained the following errors: In addition, on December 26, 2020, fully depreciated equipment was sold for $ 19,000, but the sale was not recorded until 2021. No corrections have been made for any of the errors. Instructions Ignoring income tax, show your calculation of the total effect of the errors on 2020 net income.

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 to be an accounting change?

Matching disclosures to situations In the blank to the left of each statement, fill in the letter from the following list which best describes the treatment of the item on the financial statements of Sora Inc. for the current year ending December 31, 2020: a) Change in accounting policy requiring retrospective application b) Change in estimate c) Correction of error d) None of the above 1. In 2020, the company changed its method of recognizing income from the completed-contract method to the percentage-of-completion method. 2. At the end of 2020, an audit revealed that the corporation's allowance for doubtful accounts was too large and should be reduced to 2%. When the audit was performed in 2019, the allowance seemed appropriate. 3. Depreciation on a truck, acquired in 2016, was understated because the service life had been overestimated. The understatement had been made in order to show higher net income in 2017 and 2018. 4. The company switched from average cost to FIFO inventory costing during the current year. 5. In 2020, Sora introduced a new pension plan for its employees, which included past service costs of $ 50,000. It decided to recognize the $ 50,000 as part of its 2020 pension expense. 6. During 2020, a long-term bond with a carrying value of $ 3,600,000 was retired at a cost of $ 4,100,000. 7. After negotiations with Canada Revenue Agency, income taxes owing for 2019 were established at $ 42,900. They were originally estimated to be $ 28,600. 8. In 2020, the company incurred interest expense of $ 29,000 on a 20-year bond issue. 9. In calculating the depreciation in 2018 for buildings, an error was made which overstated income in that year by $ 75,000. The error was discovered in 2020. 10. In 2020, the company changed its method of depreciating plant assets from the double declining-balance method to the straight-line method. a) Change in accounting policy requiring retrospective application b) Change in estimate c) Correction of error d) None of the above

Explain how management should apply accounting policies under IFRS and ASPE when there is no specific IFRS or primary source of GAAP to refer.

Explain the three types of accounting changes and provide an example for each.

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

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

On January 1, 2017, Cumberland Ltd. bought machinery for $ 750,000. They used straight-line depreciation for this machinery, over an estimated useful life of ten years, with no residual value. At the beginning of 2020, 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 2020, the depreciation expense for this machinery is

What effect do accounting changes have on financial statement analysis and how can readers / users address the effects?

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

The underlying principle of the retrospective application method is to

Use the following information for questions 30-31. Major Corp. purchased a machine on January 1, 2017, for $ 900,000. 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, 2020, Major 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 2020 to reflect this additional information. -What is the amount of depreciation expense on this machine that should be reported in Major's income statement for calendar 2020?