Exam 20: Accounting Changes and Error Corrections

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the most correct term. -Pro forma disclosure

After issuing its financial statements, a company discovered that its beginning inventory was overstated by $100,000. Its tax rate is 30%. As a result of this error, net income was:

How many acceptable approaches are there for changes in accounting principles?

Patterson Company failed to adjust for a $600,000 actual loss on pension plan assets in 2018, resulting in an underfunded pension plan. Patterson's tax rate is 30%. As result of this error, retained earnings would be:

What are the situations deemed to constitute a change in reporting entity? Describe the way changes in reporting entity are reported.

Disclosure notes related to a change in accounting principle under the retrospective approach should include:

Doug Smith Industries purchased warehouses for $55 million (no residual value) at the beginning of 2015. The warehouses were being depreciated over a 10-year life using the sum-of-the-years'-digits method. At the beginning of 2018, management decided to change to straight-line. - Ignoring taxes, the 2018 adjusting entry will include a debit to depreciation expense of:

Most, but not all, changes in accounting principle are reported using the retrospective approach.

Describe the way we account for a change in estimate. What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?

The prospective approach usually is required for:

Pinnacle Corporation has been using the straight-line depreciation method to depreciate some office equipment that was acquired at the beginning of 2015. At the beginning of 2018, Pinnacle decided to change to the double-declining-balance method. The equipment cost $120,000 and is expected to have no salvage value. The estimated useful life of the equipment is five years. The tax rate is 30%. Required: Prepare the journal entry, if any, to record the accounting change at the beginning of 2018.

If a change is made from straight-line to units-of-production depreciation, one should record the effects by a journal entry including:

Cooper Inc. took physical inventory at the end of 2017. Purchases that were acquired FOB destination were in transit, so they were not included in the physical count.

During 2018, Hoffman Co. decides to use FIFO to account for its inventory transactions. Previously, it had used LIFO.

How may accounting changes detract from accounting information?

C Co. reported a retained earnings balance of $200,000 at December 31, 2017. In September 2018, C determined that insurance premiums of $30,000 for the three-year period beginning January 1, 2017, had been paid and fully expensed in 2017. C has a 30% income tax rate. What amount should C report as adjusted beginning retained earnings in its 2018 statement of retained earnings?

Nash Industries changed its method of accounting for warranties from the cash basis to the accrual basis on January 1, 2018. The company's accountant determined that a liability of $70,000 should be established. Ignore income taxes. Required: Prepare the journal entry to record the accounting change.

Green Co. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the sum-of-the-years'-digits method. The residual value is expected to be $4 million. At the beginning of 2018, Green decided to change to the straight-line method. Required: 1. Ignoring income taxes, what journal entry(s) should Green record relating to the machine for 2018? 2. Suppose Green has been using the straight-line method and switches to the sum-of-the-years'-digits method. Ignoring income taxes, what journal entry(s) should Green record relating to the machine for 2018?

An accounting change that is reported by the prospective approach is reflected in the financial statements of:

When an accounting change is reported under the retrospective approach, prior years' financial statements are: