Exam 22: Accounting Corrections and Error Analysis

When preparing the operating activities section of the statement of cash flows,both FASB and IASB prefer the direct method over the indirect method.

A decrease in a liability,all other things being equal,serves to increase cash flows.

IFRS does not require that the increase or decrease in cash and cash equivalents explained in the statement of cash flows agree to the line item Cash and Cash Equivalents in the balance sheet.

Which of the following statements regarding a bargain purchase option is true?

The conceptual model for the statement of cash flows is based on the accounting equation.

When an income statement error,that does not affect the balance sheet,is not found until after the books are closed,an entry ________.

Humphrey Contractors purchased customized equipment in January,2015 for $500,000.The manufacturer warranted the equipment for six years.Humphrey used double-declining balance depreciation with a useful life of eight years and no salvage value.After two full years,he now believes that the equipment will only last a total of five years.Compute his depreciation expense for 2017 if he switches to straight-line depreciation.

A company reconciles net income to net cash flow from operating activities when using the direct method.

The State of Alabama filed suit against Edwards Chemical Company for violations of water pollution laws in 2015.During 2015,the company accrued a $250,000 loss for litigation.At the end of 2016,Edwards was able to settle with the State for $205,000.What entry should Edwards make when it pays the State in December,2016?

On February 1 of the current year,Greenstein Corporation leased equipment under a six-year noncancellable lease.The estimated economic of the equipment is ten years.The fair value of the equipment is $900,000.The lease does not contain a bargain purchase option or a transfer of title.Greenstein must classify this lease as a capital lease if the present value of the minimum lease payments is at least ________. A)$600,000 B)$675,000 C)$810,000 D)$900,000

In 2017,BayKing Company sold used equipment for $17,000.The equipment had an original cost of $80,000 and accumulated depreciation as of the date of sale was $60,000.BayKing also purchased held-for-maturity securities for $7,000.Net income for the year was $66,000 after deducting $8,000 in depreciation expense.There were no other transactions conducted during the period.What are the investing cash flows for BayKing? A)$24,000 B)$17,000 C)$13,000 D)$10,000

In a sales-type capital lease,the lessor expenses initial direct costs at the inception of the lease.

Changes in methods of depreciation are changes in estimates effected by changes in accounting principles and are handled prospectively.

All of the following would appear as significant non-cash transactions in the notes to the financial statements except ________. A)issuing preferred stock B)converting bonds into capital stock C)exchanging land for a building D)signing a capital lease

Which of the following items would be reported in the financing activities section of the statement of cash flows?

Mandatory accounting changes require retrospective application of the new accounting standard.

Miller Manufacturing purchased a packaging machine for $300,000 on January 2,2012.The seller assumed that the machine would be functional for at least five years with no salvage value.In 2015,Miller decided that the machine would last an additional five years with a salvage value of $20,000.The company uses straight-line depreciation for all assets.What amount of depreciation should Miller record in 2015 and following years?

Reconstruct the table with corrected amounts.

Under IFRS,the lessee's required disclosures include required lease payments for both operating and capital leases for each of the next five years.

Lessors classify leases as either sales-type leases or incremental-borrowing type leases.