Exam 20: Accounting Changes and Error Corrections

A company mistakenly expensed a $100,000 machine purchased January 1,2011.The machine has no salvage value and is expected to provide benefits for five years.The error was discovered in 2014.The company shows two years of comparative statements in its December 31 annual reports.In the company's 2013 and 2014 reports shown comparatively,what amounts would be shown as adjustments to the respective retained earnings balances?

Managers often are accused of making accounting changes in order to avoid regulation,to achieve compliance with debt covenants,to increase compensation through earnings-based bonus plans,or to smooth earnings.Managers may indeed believe that by increasing earnings,and thus increasing earnings per share,stock prices will increase. Explain the relationship between attempts by managers to manipulate earnings through accounting changes and the efficient market hypothesis.

On December 31,2014,Artistown Company appropriately changed to the FIFO cost method from the weighted-average cost method for financial statement and income tax purposes.The change will result in a $700,000 increase in the beginning inventory at January 1,2014.Assuming a 40 percent income tax rate and that no comparative financial statements for prior years are reported,the cumulative effect of this accounting change reported for the year ended December 31,2014,is

In 2014,a company discovered that $20,000 of equipment purchased on January 1,2011,was expensed in full.The equipment has a ten-year life,no residual value,and should have been depreciated on the straight-line basis.The error is corrected.As a result,the comparative 2013 and 2014 financial statements will show what amounts as adjustments to the beginning balances of retained earnings dated:

The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported

Mako's Distributing purchased equipment on January 1,2011.The equipment cost $214,000 with a salvage value of $14,000 and an estimated life of 8 years.Initially,Mako depreciated the equipment using the sum-of-the-years'-digits method.On January 1,2014,the company elected to change to the straight-line method of depreciation. Required: Determine the depreciation expense for 2014 and prepare the appropriate journal entry.

McCartney Corp.reports on a calendar-year basis.Its 2013 and 2014 financial statements contained the following errors: As a result of the above errors,2014 income would be

Since its organization on January 1,2012,Virginia Inc.failed to properly recognize accruals and prepayments.Selected accounts revealed the following information: Net income reported by the company was: Compute the corrected net income for the years 2012,2013,and 2014.(Ignore income taxes.)

Which of the following concepts or principles relates most directly to reporting accounting changes and errors?

Which of the following,if discovered by Somber Company in the accounting period subsequent to the period of occurrence,requires the company to report the correction of an error?

When a firm changed its method of accounting for inventory from LIFO to FIFO in 2014,it decided that the 2014 financial statements should be shown comparatively with the 2013 results. Which of the following statements concerning reporting the change in the retained earnings statement is correct?

Songtress Company bought a machine on January 1,2012,for $24,000,at which time it had an estimated useful life of eight years,with no residual value.Straight-line depreciation is used for all of Songtress' depreciable assets.On January 1,2014,the machine's estimated useful life was determined to be only six years from the acquisition date.Accordingly,the appropriate accounting change was made in 2014.Songtress' income tax rate was 40 percent in all the affected years.In Songtress' 2014 financial statements,how much should be reported as the cumulative effect on prior years because of the change in the estimated useful life of the machine?

On January 1,2011,Caravanos Company purchased for $320,000 a machine with a useful life of ten years and no salvage value.The machine was depreciated by the double-declining-balance method,and the carrying amount of the machine was $204,800 on December 31,2012.Caravanos changed to the straight-line method on January 1,2013.Caravanos can justify the change.What should be the depreciation expense on this machine for the year ended December 31,2014?

A retailing firm changed from LIFO to FIFO in 2014. Inventory valuations for the two methods appear below: Purchases in 2013 and 2014 were $60,000 in each year. -Using the information above,choose the following: 1.The correct amount in the 2014 entry to record the accounting principle change 2.Whether the entry affects 2014 earnings or is recorded as an adjustment to retained earnings (RE) 3.The 2014 cost of goods sold

Which of the following types of errors will NOT self-correct in the next year?

Which of the following is not a justification for a change in depreciation methods?

Which of the following is correct regarding the provisions of IAS No.8 on accounting changes and error corrections?

Which of the following does NOT represent a change in reporting entity?

A retailing firm changed from LIFO to FIFO in 2014. Inventory valuations for the two methods appear below: Purchases in 2013 and 2014 were $60,000 in each year. -Using the information above,in the comparative 2013 and 2014 income statements,what amounts would be shown for cost of goods sold?

Elder Corporation decided to change its depreciation policy by (1)changing from double-declining-balance depreciation,and (2)changing the estimated useful life on all automobiles used in the business from five years to four years. Which of the following is correct concerning these two changes?