Exam 22: Accounting Corrections and Error Analysis

Accounting entity changes are handled prospectively.

Many errors are due to misapplication of accounting policies.

The appropriate asset value that a lessee reports on its balance sheet for an operating lease is ________.

Brown Furniture Company decided to go after the younger market to create a newer customer base.In doing so,Ms.Brown offered a liberal credit policy and estimated she would have a 4% bad debt expense.In 2016,sales under this promotion were $600,000.Accordingly,she estimated a bad debt expense of $24,000.Her actual bad debt expenses were far less than expected,at about 2%.Her 2017 sales under the program are $800,000.How much bad debt expense should be reported on comparative income statements based on this information?

Refer to Superbyte Corporation. Superbyte Corporation would account for this lease as ________. A)a capital lease B)a direct financing lease C)an operating lease D)a sales-type lease

In reconciling information to complete its financial statements,Flying High Corporation discovered the following situations: Required: Assuming that no depreciation had been recorded,recompute depreciation expense,bad debt expense,net income before taxes,income tax expense,and net income.

The total amount of share-based compensation expense and pension expense must be added to net income to determine cash flows from operations.

In 2015,Antiques,Inc.incorrectly recorded ending inventory as $970,000 instead of $790,000.The controller discovered the error in 2017 when reviewing final entries for 2016 financial statements.The 2016 ending inventory amount was correct.Tax rates for all years is 40%.Which one of the following entries is correctly written and dated? A) B) C) D)

If a lessee makes prepayments on an operating lease,they are considered to be ________. A)restoration costs B)capitalizable costs C)executory costs D)prepaid rent

Explain why comparability and consistency are considerations for accounting changes.

Note A: Change in Method of Accounting for Bronco Construction,Inc. On January 1,2016 the company changed its method of accounting for long-term construction from the completed-contract method to the percentage of completion method.The new method of accounting is considered preferable because it better reflects changes in the nature of the company's operations.Comparative financial statements have been adjusted to apply the new method retrospectively.Net income is increased by $31,000 and $20,000 in the years ended December 31,2015 and 2014,respectively.As a result of the change to the percentage-of-completion method,the current year's net income is higher by $21,000 as compared to the results obtained if the completed-contract method was still used.Construction-in-progress has been increased by $51,000 as of the beginning of the current year.The cumulative effect of the change is to increase beginning retained earnings by $51,000.The accounting change in principle is reported retrospectively.

Sumner leases a copier from Jenks Corporation under an operating lease.Which of the following statements is correct? A)Jenks records depreciation and lease revenue. B)Jenks records profit at the inception of the lease. C)Sumner will receive title at the end of the lease. D)Sumner records depreciation and interest expense.

Under U.S.GAAP,which of the following may be included in the financing activities section of the cash flow statement? A)receipt of dividends B)payment of dividends C)receipt of interest D)payment of interest

Prepare the footnote disclosure for the change from the completed-contract method to the percentage-of-completion method.Designate the note as "Note A: Change in Method of Accounting for Bronco construction,Inc."

Operating cash flows include cash flows that relate to the production and delivery of goods and services.

When the lessor pays executory costs then shifts the costs to the lessor through higher rental payments,the executory costs are not included in the calculation of minimum rental payments.

Lawson leased equipment from Tirado on January 1 of the current year.The lease is a 12 year lease with annual payments of $175,000 due on each January 1,beginning with the current year.The present value of the lease is $1,424,318.Lawson's incremental borrowing rate is 10%; Lawson knows that Tirado's implicit interest rate is 8%.What is the balance of Lawson's lease liability at December 31 or the current year? A)$1,136,636 B)$1,249,318 C)$1,017,396 D)$1,143,814

Firms report cash flows from investing activities using a ________. A)gross method approach B)net method approach C)indirect method approach D)direct method approach

Which of the following is not a component of a minimum lease payment?

The IRS is investigating Miller Productions tax returns for 2015 and 2016.Based on the IRS audit procedures,the company accrued a $50,000 loss additional assessment in 2016 for the 2015 tax year.At the end of 2016,Miller was able to settle with IRS for $62,000.What entry should Edwards make when it pays the deficiency in December,2016? A) Cash 62,000 B) Cash 62,000 C) Cash 38,000 D) Cash 62,000