Exam 20: Accounting Changes and Error Corrections

Which of the following is accounted for prospectively?

Accounting changes occur for which of the following reasons?

Prior years' financial statements are restated under the:

Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Standards (IFRS)?

Which of the following is a change in estimate?

Lindy Company's auditor discovered two errors. No errors were corrected during 2017. The errors are described as follows: (1.) Merchandise costing $4,000 was sold to a customer for $9,000 on December 31, 2017, but it was recorded as a sale on January 2, 2018. The merchandise was properly excluded from the 2017 ending inventory. Assume the periodic inventory system is used. (2.) A machine with a five-year life was purchased on January 1, 2017. The machine cost $20,000 and has no expected salvage value. No depreciation was taken in 2017 or 2018. Assume the straight-line method for depreciation. Required: Prepare appropriate journal entries (assume the 2018 books have not been closed). Ignore income taxes.

When the retrospective approach is used for a change to the FIFO method, which of the following accounts is usually not adjusted?

Branch Industries changes from declining balance depreciation to straight-line depreciation for existing assets. Describe in detail the way Branch would account for the change and include reasons for the accounting.

Which of the following is not a change in reporting entity?

Early in 2018, Ashland Granite discovered that a five-year insurance premium payment of $750,000 at the beginning of 2015 was debited to insurance expense. The correcting entry would include:

Lundholm Company purchased a machine for $100,000 on January 1, 2016. Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value. Due to a change in sales patterns, on January 1, 2018, management determines the useful life of the machine to be a total of five years. What amount should Lundholm record for depreciation expense for 2018? The tax rate is 40%.

Berkshire Inc. uses a periodic inventory system. At the end of 2017, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire has a 30% income tax rate and that this was the only error it made. v -If undetected, what is the effect of this error on Berkshire's December 31,2017 balance sheet?

Which of the following is an example of a change in accounting principle?

When a change in accounting principle is reported, what is sometimes sacrificed?

L Company discovered that a three-year insurance premium payment of $240,000 one year ago was debited to insurance expense. Required: 1. What action is required? Ignore taxes. 2. What action is required if the error is not discovered until four years after it occurred?

Venice Company purchased a gondola for $440,000 (no residual value) at the beginning of 2015. The gondola was being depreciated over a 10-year life using the sum-of-the-years'-digits method. At the beginning of 2018, it was decided to change to straight-line. Ignoring taxes, the 2018 adjusting entry will include a debit to depreciation expense of:

The modified retrospective approach requires:

Z Company acquired a subsidiary several years ago that was appropriately excluded from consolidation last year. This year Z has consolidated the subsidiary in its financial statements. This results in:

At the end of the current year, a company overstated prepaid insurance by $80,000 and understated supplies expense by $100,000. Its effective tax rate is 40%. As a result of this error, net income is:

In 2018, due to a change in marketing forecasts, Barney Corporation reduced the projected life of its patent for producing round dice. The cumulative patent amortization prior to 2018 would have been $10 million higher had the new life been used. Barney's tax rate is 30%. Barney's retained earnings as of December 31, 2018, would be: