Exam 22: Accounting Corrections and Error Analysis

If a capital lease contains a bargain purchase option,the depreciation period that is used by the lessee for the asset is ________. A)the useful life to the lessee B)the same period used by the lessor C)the lease term D)the statutory life for all assets in that class

Changes in specific subsidiaries that make up the group of entities are changes in a reporting entity.

Butler Products decided to change inventory methods on January 1,2016 to more effectively report its results of operations.In the past,management has measured its ending inventories by the average-cost method and they now believe that FIFO is a better representation of its financial position and profitability.Butler's tax rate is 35% for all years. Which one of the following journal entries correctly records the change in the accounting principle?

Judgments are important in determining which type of estimates used by accountants?

Which of the following is a cash outflow from investing activities?

Retrospective changes require restatement of all periods reported in the annual report as if it had been used in those prior years.

A material error is one that if not corrected,it would impact a user's decisions.

For a lessor to classify a lease as a capital lease,there can be no material uncertainties regarding the amount of reimbursable costs to be incurred by the lessee.

Courtney's Cafes,Inc.CFO discovered a series of errors in its inventory system in early 2018,when he was making year-end adjustments to the financial statements for 2017.The errors began in 2015.Below is a summary of the sales and cost of goods sold on income statement items for the three years: Upon further analysis,the CFO determined that each of the years had ending inventory errors.The correct amounts for the years were: 2015,$63,000; 2016,$101,000; and 2017,$106,000.The amounts for 2015 beginning inventory and all purchases are correct as stated. Required:

A material error in ending inventory requires special analysis because it ________.

The financing cash flows section is based on an analysis of the balance sheet accounts for non-current liabilities and equity.

During 2015,a $50,000 loss on the sale of machinery was incorrectly recorded as a factory equipment repair.The error was not discovered until the books were closed and financial statement were issued for 2016.What adjustment is necessary?

The conceptual model for the statement of cash flows is based on which of the following equations? A)Total Cash Flows = Cash from Operating Activities + Cash from Financing Activities + Cash from Investing Activities B)Net Income = Revenues - Expenses + Gains - Losses C)Assets = Liabilities + Equity D)Change in Retained Earnings = Net Income - Dividends

When there is a guaranteed residual value,the leased asset will be depreciated over the life of the asset instead of the life of the lease.

Which of the following is not a required disclosure item for the statement of cash flows?

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 2017 operating cash flows for BayKing?

The auditor for Universal Tools,Inc.discovered in 2017 that the warranty liability account showed a $25,000 debit balance.She reasoned that the correct treatment of this discovery is to ________.

Changes in reporting entities are handled prospectively.

What are the cash flow effects of unrealized gains or losses reported through other comprehensive income? Explain.

Cash collected from customers is calculated as net sales revenue minus increases in accounts receivable.