Exam 22: Accounting Corrections and Error Analysis

Which one of the following would not be effected by a change in revenue recognition requiring a retrospective change?

Jackson Corporation leases equipment to Andrews Company for a five year period.At the beginning of the lease,Jackson records sales revenue.The lease to Andrews must ________.

Which of the following is not an advantage of leasing an asset for the lessee? A)lower overall costs B)risk of obsolescence is reduced C)potential tax benefits D)improved cash flows

Both U.S.GAAP and IFRS require that an entity disclose its policy regarding cash equivalents.

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

When accountants discover material errors,they must be corrected.

A lessee normally computes the liability on a lease as the ________.

How do the total expenses over the life of a capital lease compare with the total expenses over the life of an operating lease?

Under a direct-finance capital lease,a lessor recognizes both interest revenue and gross profit.

Machino,Inc.began operations on January 1,2014.During 2016,management decided to change from average-cost method to FIFO for its merchandise inventories.The change was effective at January 1,2016.Management determined that cost of goods sold for each method would be: The company's statements as reported under average-cost before implementing the accounting change for 2016,2015,and 2014,respectively,are presented below.The income tax rate for Machino is 40%. Required:

In determining the present value of the minimum lease payments under U.S.GAAP,the discount rate used by the lessee is the lower of the lessor's implicit rate or the lessee's incremental borrowing rate.

Income statement errors in the current year that do not affect the balance sheet may ________.

Lessees generally depreciate leased assets over the lease term unless the lease includes a transfer of ownership or a bargain purchase option.

How is net income adjusted for pension costs under the indirect method?

A direct financing lease is classified in the lessor's balance sheet as ________.

Discuss the economic advantages and disadvantages of leasing assets.

Under the direct method,items included in the operating activities cash flow calculations include cash collected from customers and cash collected from the sale of operating assets.

What is a requirement for lease disclosures under IFRS? A)IFRS requires disclosure of the fair value of all leased assets. B)IFRS requires disclosure of future lease payments for each of the next five years. C)IFRS requires that lessee companies disclose future lease payments for the first year,the total of years two through five,and the remaining aggregate payments. D)IFRS requires disclosure of rent expense for the five year period.

The statement of cash flows is divided into three sections under U.S.GAAP and four sections under IFRS.

When preparing the financing activities section of the cash flow statement,firms dividends paid and dividends received as separate line items.