Exam 22: Accounting Corrections and Error Analysis

At the end of 2015,the payroll supervisor for Claro,Inc.failed to accrue $24,800 in commissions for their outside salespersons.The cost was recorded in 2016 when the commissions were paid and Commissions Expenses was debited and Cash credited for the full amount.The error was not discovered until late in 2016 while reconciling year-end expenses for 2016.The tax rate for both years was 35%.What is the proper journal entry to correct the error for 2016?

To be classified as a capital lease,a lease must meet all four of the capital lease criteria.

Make the journal entry to correct the errors using the proper date.

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

On March 1 of the current year,Hill Corporation leased sound equipment from McEntire Company.The equipment has a life of 8 years.There is no bargain purchase option or passage of title.For the lease to be considered a capital lease,it must have a term of at least ________. A)5 years B)6 years C)7 years D)8 years

Cash flows from financing activities include receipts of cash from issuing bonds and capital stock.

When a firm decides to change an accounting principal,but does not have sufficient information to use the retrospective approach,it may ________.

Changes in depreciation methods are changes in accounting principles handled retrospectively.

On December 31 of the current year,Johnson Corporation leased equipment to Kennedy Company for a five-year period.The annual lease payment is $40,585; the discount rate for this lease is 8%.Lease payments are due on December 31 of each year,and the first payment was made at the inception of the lease.The normal cash price for this type of equipment is $175,000; the cost to Johnson was $150,000.The expected life of the equipment is five years.For December 31 of the current year,what will be the increase to Johnson's pretax earnings due to this lease?

When using the multiplier approach to lease capitalization,which of the following is not a factor that must be estimated? A)depreciation expense B)interest expense C)rent expense D)fair value of the leased asset

Make the journal entry to correct the errors using the proper date.

Under IFRS,a capital lease is referred to as a finance lease.

Which of the following is a disclosure that a lessee must make within its financial statements?

JAT Corp.loaned $375,000 for three years to a major supplier on July 1,2015.The note stipulated 10% interest to be paid annually each June 30.Since this was an unusual transaction,no one billed the supplier for the interest in 2016 or recorded the accrued interest at the year end (December).On March 1,2017,after the 2016 books were closed,the CFO found the error.Which one of the following is the correct journal entry to correct the errors thru March 1,2017? (Ignore income taxes.)

Energy,Inc began operations in 2015 using LIFO inventory methods.In 2016,management decided they should have chosen FIFO.The beginning inventory for 2016 using LIFO was $125,000.Under the FIFO method,the beginning inventory would have been $140,000.The adjustment to inventory for the change in accounting principle for 2016 would be ________.

Changes in current liabilities relate to financing activities.

Indirect effects of changes in an accounting principle are those that change current or future cash flows and are applied prospectively.

Companies classify some cash flows relating to investing or financing activities as operating activities.

When a self-correcting error is discovered after closing the books for the second year ________.

The party acquiring the use of a leased asset is the lessor.