Exam 22: Accounting Corrections and Error Analysis

Which of the following is not a cash inflow from financing activities? A)issuance of stock B)purchase of treasury stock C)purchase of bonds D)payment of dividends

The auditor for Universal Tools,Inc.discovered in 2017 that the warranty liability account showed a $25,000 debit balance.She investigated and discovered that the 2% estimate for warranty expense was recorded and understated,and it was more likely 3.5%.Sales for 2017 were $5,500,000.She should make which one of the following entries?

For each of the following situations,determine the type of change and the accounting method that should be employed. Complete the following table by selecting the appropriate type of changes and the accounting method appropriate method for each event.

Which of the four criteria should not be applied if a lease begins in the last 25% of an asset's useful life?

John Pickens writes mystery novels.His publisher pays him royalties for books sold each year.He is paid royalties for the first half of the year on September 30 and the second half of the year on March 31 of the following year.He received $42,000 in September,2016.The publisher estimated that his royalties for the second half of the year would be $53,000.On March 31,2017,he received $57,500.Assuming that he recorded $53,000 at December 31,2016,which one of the following is the correct journal entry on March 31,2017? His tax rate is 35%.

When computing cash interest paid under the direct method,firms subtract the sum of bond discount amortization increase in interest payable from interest expense.

Which of the following is considered to be part of cash and cash equivalents under IFRS,but not U.S.GAAP? A)treasury bills B)bank overdrafts C)commercial paper D)money market funds

In completing the adjusting entries for 2017 in early 2018,the internal auditor discovered that a trademark,with an estimated eight year life that was registered in January,2017 had not been amortized.The trademark cost $400,000.(The income tax rate is 40%.) Required: Describe the steps to correct the error.

The primary objective of the statement of cash flows is to ________. A)provide information about a company's operating,financing,and investing activities over a period of time B)disclose changes in all asset and equity accounts over a period of time C)disclose changes in working capital over a period of time D)provide information about a company's cash-basis revenue and expenses activities over a period of time

Emma's Clothes,Inc.has accounts receivable of $210,000.In the current economy,she has noticed an increase in uncollectible accounts.In 2016,her sales were $3,200,000 and in 2017,sales were $3,800,000.She has estimated in the past that 2% of sales would eventually be uncollectible.Emma believes that her losses were closer to 3% last year.She has recorded bad debt expense of 2% for 2017.Does she need to make a retroactive correction for 2016,and should she add an additional adjustment to 2017? If so,write the journal entry for the year-end adjustment.

Sumner leases equipment to Butler Corporation.Butler records the first payment as recorded as prepaid rent.This implies that the lease ________.

Under U.S.GAAP,the disclosure requirements for lessors with operating leases include the cost or carrying value of assets held and leased to others,net of depreciation.

Hampton's Construction,Inc.decided to change from completed-contract method of accounting to percentage-of-completion method.Hampton will continue to us the completed-contract method for income tax purposes.The following information is available for net income.The income tax rate for all years is 35%. What is the journal entry to record the change in accounting principle on January 1,2016?

u.S.GAAP and IFRS accounting is the same with regard to the lessor accounting for capital leases.

For a lessor to classify a lease as a capital lease,collectability of the required minimum lease payments must be reasonable assured.

Changes in retained earnings always relate to operating activities.

Generally,the lease term is the duration of the non-cancellable portion of the lease plus any bargain renewal options.

For a direct-finance capital lease,the lessor removes the leased asset from its balance sheet and records a lease receivable at the inception of the lease.

Changes in which of the following are included in operating activities? A)accounts payable B)bonds payable C)treasury stock D)property,plant,and equipment

Under the indirect method,firms treat gains/losses from the sale of long-term assets as decreases/increases to net income in the operating activities section of the cash flow statement.