Question 1

Which of the following is NOT correct regarding a change in reporting entity?

Accepted Answer

A)  Financial statements of the year in which the change in reporting entity is made should disclose the nature of the change and the reason for the change. 
B)  The effect of the change on income before extraordinary items,net income,and earnings per share amounts should be reported for all periods presented. 
C)  Financial statements presented for all prior periods must be restated. 
D)  The effect of the change on income before extraordinary items,net income,and earnings per share amounts should be reported for all periods presented and must be repeated in all periods subsequent to the period of the change. 
A)  Financial statements of the year in which the change in reporting entity is made should disclose the nature of the change and the reason for the change. 
B)  The effect of the change on income before extraordinary items,net income,and earnings per share amounts should be reported for all periods presented. 
C)  Financial statements presented for all prior periods must be restated. 
D)  The effect of the change on income before extraordinary items,net income,and earnings per share amounts should be reported for all periods presented and must be repeated in all periods subsequent to the period of the change. D

Question 2

Which of the following is the proper time period in which to record a change in accounting estimate?

Accepted Answer

A)  Current period and future periods 
B)  Current period and retroactively 
C)  Retroactively only 
D)  Current period only 
A)  Current period and future periods 
B)  Current period and retroactively 
C)  Retroactively only 
D)  Current period only A

Question 3

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.

Accepted Answer

Accumulated depreciation at 1/1/2014:
   Annual depreciation expense for the last five years of the life of the asset:
($214,000 - $14,000 - $116,666)/ 5 years = $16,667
Journal entry at December 31,2014:

Question 4

Rickles,Inc.is a calendar-year corporation whose financial statements for 2013 and 2014 included errors as follows:   Assume that purchases were recorded correctly and that no correcting entries were made at December 31,2013,or December 31,2014.Ignoring income taxes,by how much should Rickles's retained earnings be retroactively adjusted at January 1,2015?

Accepted Answer

A)  $27,000 increase 
B)  $27,000 decrease 
C)  $7,000 decrease 
D)  $3,000 decrease 
A)  $27,000 increase 
B)  $27,000 decrease 
C)  $7,000 decrease 
D)  $3,000 decrease

Question 5

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? 2013 2014

Accepted Answer

A)  $50,000 $58,000 
B)  $51,000 $55,000 
C)  $50,000 $55,000 
D)  $51,000 $58,000 
A)  $50,000 $58,000 
B)  $51,000 $55,000 
C)  $50,000 $55,000 
D)  $51,000 $58,000

Question 6

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

Accepted Answer

A)  overstated by $4,000. 
B)  overstated by $24,000. 
C)  overstated by $22,000. 
D)  overstated by $16,000. 
A)  overstated by $4,000. 
B)  overstated by $24,000. 
C)  overstated by $22,000. 
D)  overstated by $16,000.

Question 7

If,at the end of a period,Michaels Company erroneously excluded some goods from its ending inventory and also erroneously did NOT record the purchase of these goods in its accounting records,these errors would cause

Accepted Answer

A)  no effect on the company's net income,working capital,and retained earnings. 
B)  the company's cost of goods available for sale,cost of goods sold,and net income to be understated. 
C)  the company's ending inventory,cost of goods available for sale,and retained earnings to be understated. 
D)  the company's ending inventory,cost of goods sold,and retained earnings to be understated. 
A)  no effect on the company's net income,working capital,and retained earnings. 
B)  the company's cost of goods available for sale,cost of goods sold,and net income to be understated. 
C)  the company's ending inventory,cost of goods available for sale,and retained earnings to be understated. 
D)  the company's ending inventory,cost of goods sold,and retained earnings to be understated.

Question 8

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

Accepted Answer

A)  Changing the companies included in combined financial statements 
B)  Disposition of a subsidiary or other business unit 
C)  Presenting consolidated statements in place of the statements of individual companies 
D)  Changing specific subsidiaries that constitute the group of companies for which consolidated financial statements are presented 
A)  Changing the companies included in combined financial statements 
B)  Disposition of a subsidiary or other business unit 
C)  Presenting consolidated statements in place of the statements of individual companies 
D)  Changing specific subsidiaries that constitute the group of companies for which consolidated financial statements are presented

Question 9

Strong Company's December 31 year-end financial statements contained the following errors:   An insurance premium of $3,600 was prepaid in 2013 covering the years 2013,2014,and 2015.The entire amount was charged to expense in 2013.In addition,on December 31,2014,fully depreciated machinery was sold for $6,400 cash,but the sale was not recorded until 2015.There were no other errors during 2013 or 2014,and no corrections have been made for any of the errors.Ignore income tax considerations.What is the total effect of the errors on 2014 net income?

Accepted Answer

A)  Net income is understated by $12,800. 
B)  Net income is overstated by $3,600. 
C)  Net income is understated by $1,600. 
D)  Net income is overstated by $2,400. 
A)  Net income is understated by $12,800. 
B)  Net income is overstated by $3,600. 
C)  Net income is understated by $1,600. 
D)  Net income is overstated by $2,400.

Question 10

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? 2013 2014

Accepted Answer

A)  $60,000 $40,000 
B)  $0 $40,000 
C)  $60,000 $0 
D)  $60,000 $20,000 
A)  $60,000 $40,000 
B)  $0 $40,000 
C)  $60,000 $0 
D)  $60,000 $20,000

Question 11

An example of an item that should be reported as a prior period adjustment is the

Accepted Answer

A)  collection of previously written off accounts receivable. 
B)  payment of taxes resulting from examination of prior years' income tax returns. 
C)  correction of an error in financial statements of a prior year. 
D)  receipt of insurance proceeds for damage to a building sustained in a prior year. 
A)  collection of previously written off accounts receivable. 
B)  payment of taxes resulting from examination of prior years' income tax returns. 
C)  correction of an error in financial statements of a prior year. 
D)  receipt of insurance proceeds for damage to a building sustained in a prior year.

Question 12

Badger Corporation purchased a machine for $132,000 on January 1,2011,and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value.On January 1,2014,Badger determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $12,000.A change in estimate was made in 2014 to reflect these additional data.What amount should Badger record as the balance of the accumulated depreciation account for this machine at December 31,2014?

Accepted Answer

A)  $73,000 
B)  $77,000 
C)  $61,250 
D)  $63,600 
A)  $73,000 
B)  $77,000 
C)  $61,250 
D)  $63,600

Question 13

Cornwall Co.made the following errors in counting its year-end physical inventories:   The entry to correct the accounts at the end of 2014 is

Accepted Answer

A)  Retained Earnings ...................48,000
Cost of Goods Sold ..................42,000
Inventory ........................90,000 
B)  Retained Earnings ...................18,000
Cost of Goods Sold ..................72,000
Inventory ........................90,000 
C)  Inventory ..........................90,000
Cost of Goods Sold ...............18,000
Retained Earnings ...............72,000 
D)  Cost of Goods Sold ..................198,000
Retained Earnings ................108,000
Inventory ........................90,000 
A)  Retained Earnings ...................48,000
Cost of Goods Sold ..................42,000
Inventory ........................90,000 
B)  Retained Earnings ...................18,000
Cost of Goods Sold ..................72,000
Inventory ........................90,000 
C)  Inventory ..........................90,000
Cost of Goods Sold ...............18,000
Retained Earnings ...............72,000 
D)  Cost of Goods Sold ..................198,000
Retained Earnings ................108,000
Inventory ........................90,000

Question 14

Which of the following accounting treatments is proper for a change in reporting entity?

Accepted Answer

A)  Restatement of all financial statements presented 
B)  Restatement of current period financial statements 
C)  Note disclosure and supplementary schedules 
D)  Adjustment to retained earnings and note disclosure 
A)  Restatement of all financial statements presented 
B)  Restatement of current period financial statements 
C)  Note disclosure and supplementary schedules 
D)  Adjustment to retained earnings and note disclosure

Question 15

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

Accepted Answer

A)  Accrued expenses not recognized at year-end 
B)  Accrued revenues that have not been collected not recognized at year-end 
C)  Depreciation expense overstated for the year 
D)  Prepaid expenses not recognized at year-end 
A)  Accrued expenses not recognized at year-end 
B)  Accrued revenues that have not been collected not recognized at year-end 
C)  Depreciation expense overstated for the year 
D)  Prepaid expenses not recognized at year-end

Question 16

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

Accepted Answer

A)  Conservatism 
B)  Consistency 
C)  Objectivity 
D)  Materiality 
A)  Conservatism 
B)  Consistency 
C)  Objectivity 
D)  Materiality

Question 17

Which of the following changes in accounting principle does not require the retrospective approach?

Accepted Answer

A)  Change from the percentage-of-completion to the completed-contract method 
B)  Change of inventory method from LIFO to FIFO 
C)  Change of inventory method from FIFO to LIFO 
D)  All of these require retroactive adjustment. 
A)  Change from the percentage-of-completion to the completed-contract method 
B)  Change of inventory method from LIFO to FIFO 
C)  Change of inventory method from FIFO to LIFO 
D)  All of these require retroactive adjustment.

Question 18

Effective January 2,2014,Moldaur Co.adopted the accounting principle of expensing advertising and promotion costs as they are incurred.Previously,advertising and promotion costs applicable to future periods were recorded in prepaid expenses.Moldaur can justify the change,which was made for both financial statement and income tax reporting purposes.Moldaur's prepaid advertising and promotion costs totaled $250,000 at December 31,2013.Assume that the income tax rate is 40 percent for 2013 and 2014.The adjustment for the effect of the change in accounting principle should result in a net charge against income in the income statement for 2014 of

Accepted Answer

A)  $0. 
B)  $100,000. 
C)  $150,000. 
D)  $250,000. 
A)  $0. 
B)  $100,000. 
C)  $150,000. 
D)  $250,000.

Question 19

Which of the following is NOT a change in accounting principle?

Accepted Answer

A)  A change from FIFO to LIFO for inventory valuation 
B)  A change from eight years to five years in the useful life of a depreciable asset 
C)  A change from completed-contracts to percentage-of-completion 
D)  A change from double-declining-balance to straight-line depreciation 
A)  A change from FIFO to LIFO for inventory valuation 
B)  A change from eight years to five years in the useful life of a depreciable asset 
C)  A change from completed-contracts to percentage-of-completion 
D)  A change from double-declining-balance to straight-line depreciation

Question 20

Diamond Company changed from the completed-contract method of accounting for long-term contracts to the percentage-of-completion method,during 2014.Reported earnings in 2013 were $50,000,and the beginning 2013 retained earnings balance was $150,000.Net income for 2014 under the competed-contract method would have been $140,000.No dividends were declared during 2013 and 2014.
   Required:
Prepare the 2013 and 2014 comparative retained earnings statements.

Accepted Answer

The answer of Diamond Company changed from the completed-contract method...

Which of the following is NOT correct regarding a change in reporting entity?

Which of the following is the proper time period in which to record a change in accounting estimate?

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

If,at the end of a period,Michaels Company erroneously excluded some goods from its ending inventory and also erroneously did NOT record the purchase of these goods in its accounting records,these errors would cause

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

An example of an item that should be reported as a prior period adjustment is the

Cornwall Co.made the following errors in counting its year-end physical inventories: The entry to correct the accounts at the end of 2014 is

Which of the following accounting treatments is proper for a change in reporting entity?

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

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

Which of the following changes in accounting principle does not require the retrospective approach?

Which of the following is NOT a change in accounting principle?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters

Exam 20: Accounting Changes and Error Corrections

Which of the following is NOT correct regarding a change in reporting entity?

Which of the following is the proper time period in which to record a change in accounting estimate?

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

If,at the end of a period,Michaels Company erroneously excluded some goods from its ending inventory and also erroneously did NOT record the purchase of these goods in its accounting records,these errors would cause

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

An example of an item that should be reported as a prior period adjustment is the

Cornwall Co.made the following errors in counting its year-end physical inventories: The entry to correct the accounts at the end of 2014 is

Which of the following accounting treatments is proper for a change in reporting entity?

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

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

Which of the following changes in accounting principle does not require the retrospective approach?

Which of the following is NOT a change in accounting principle?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters