Question 1

Which of the following is not correct regarding the provisions of IAS No.8 on accounting changes and error corrections?

Accepted Answer

A)  IAS No.8 requires that results from prior periods be presented for all changes in accounting principles. 
B)  IAS No.8 allows a change in accounting principle to be accounted for by reflecting the cumulative effect of the change in the income of the current period without restating prior-period results. 
C)  Under IAS No.8,the recommended approach for a change in accounting principle is that results from prior periods should be restated. 
D)  IAS No.8 requires a change in accounting estimate to be reflected in the current and future periods. 
A)  IAS No.8 requires that results from prior periods be presented for all changes in accounting principles. 
B)  IAS No.8 allows a change in accounting principle to be accounted for by reflecting the cumulative effect of the change in the income of the current period without restating prior-period results. 
C)  Under IAS No.8,the recommended approach for a change in accounting principle is that results from prior periods should be restated. 
D)  IAS No.8 requires a change in accounting estimate to be reflected in the current and future periods.

Question 2

Queener Corporation uses a periodic inventory system and neglected to record a purchase of merchandise on account at year-end.This merchandise was omitted from the year-end physical count.How will these errors affect Queener's assets,liabilities,and stockholders' equity at year-end and net earnings for the year? Stockholders'
Assets Liabilities Equity Net Earnings

Accepted Answer

A)  Understate Understate No effect No effect 
B)  Understate No effect Understate Understate 
C)  No effect Understate Overstate Overstate 
D)  No effect Overstate Understate Understate 
A)  Understate Understate No effect No effect 
B)  Understate No effect Understate Understate 
C)  No effect Understate Overstate Overstate 
D)  No effect Overstate Understate Understate

Question 3

Which of the following is characteristic of a change in accounting principle?

Accepted Answer

A)  Requires the reporting of pro forma amounts for prior periods 
B)  Does not affect the financial statements of prior periods 
C)  Never needs to be disclosed 
D)  Should be reported by retrospectively adjusting the financial statements for all years reported,and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported 
A)  Requires the reporting of pro forma amounts for prior periods 
B)  Does not affect the financial statements of prior periods 
C)  Never needs to be disclosed 
D)  Should be reported by retrospectively adjusting the financial statements for all years reported,and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported

Question 4

Which of the following should NOT be reported retroactively?

Accepted Answer

A)  Use of an unacceptable accounting principle,then changing to an acceptable accounting principle 
B)  Correction of an overstatement of ending inventory made two years ago 
C)  Use of an unrealistic accounting estimate,then changing to a realistic estimate 
D)  Change from a good faith but erroneous estimate to a new estimate 
A)  Use of an unacceptable accounting principle,then changing to an acceptable accounting principle 
B)  Correction of an overstatement of ending inventory made two years ago 
C)  Use of an unrealistic accounting estimate,then changing to a realistic estimate 
D)  Change from a good faith but erroneous estimate to a new estimate

Question 5

Albritton Inc.bought a patent for $900,000 on January 2,2010,at which time the patent had an estimated useful life of ten years.On February 2,2014,it was determined that the patent's useful life would expire at the end of 2016.How much would Albritton record as amortization expense for this patent for the year ending December 31,2014?

Accepted Answer

A)  $200,000 
B)  $180,000 
C)  $110,000 
D)  $90,000 
A)  $200,000 
B)  $180,000 
C)  $110,000 
D)  $90,000

Question 6

Which of the following is not an example of an accounting error,as distinguished from a change in accounting principle or change in accounting estimate?

Accepted Answer

A)  Misstatement of assets,liabilities,or owners' equity 
B)  Incorrect classification of an expenditure as between expense and an asset 
C)  Failure to recognize accruals and deferrals 
D)  Recognition of a gain on disposal of fully depreciated property 
A)  Misstatement of assets,liabilities,or owners' equity 
B)  Incorrect classification of an expenditure as between expense and an asset 
C)  Failure to recognize accruals and deferrals 
D)  Recognition of a gain on disposal of fully depreciated property

Question 7

For a company with a periodic inventory system,which of the following would cause income to be overstated in the period of occurrence?

Accepted Answer

A)  Overestimating bad debt expense 
B)  Understating beginning inventory 
C)  Overstated purchases 
D)  Understated ending inventory 
A)  Overestimating bad debt expense 
B)  Understating beginning inventory 
C)  Overstated purchases 
D)  Understated ending inventory

Question 8

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?

Accepted Answer

A)  $20,480 
B)  25,600 
C)  32,000 
D)  52,480 
A)  $20,480 
B)  25,600 
C)  32,000 
D)  52,480

Question 9

Which of the following is characteristic of a change in accounting estimate?

Accepted Answer

A)  Requires the reporting of pro forma amounts for prior periods 
B)  Does not affect the financial statements of prior periods 
C)  Never needs to be disclosed 
D)  Should be reported by retrospectively adjusting the financial statements for all years reported,and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported 
A)  Requires the reporting of pro forma amounts for prior periods 
B)  Does not affect the financial statements of prior periods 
C)  Never needs to be disclosed 
D)  Should be reported by retrospectively adjusting the financial statements for all years reported,and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported

Question 10

The cumulative effect on prior years' earnings of a change in accounting principle should be reported separately as an adjustment to retained earnings for the earliest period presented for all of the following changes except

Accepted Answer

A)  completed-contract method of accounting for long-term construction-type contracts to the percentage-of-completion method. 
B)  percentage-of-completion method of accounting for long-term construction-type contracts to the completed-contract method. 
C)  FIFO method of inventory pricing to LIFO method. 
D)  LIFO method of inventory pricing to the weighted-average method. 
A)  completed-contract method of accounting for long-term construction-type contracts to the percentage-of-completion method. 
B)  percentage-of-completion method of accounting for long-term construction-type contracts to the completed-contract method. 
C)  FIFO method of inventory pricing to LIFO method. 
D)  LIFO method of inventory pricing to the weighted-average method.

Question 11

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?

Accepted Answer

A)  The estimate of the useful life of a depreciable asset should have been revised. 
B)  Capitalization of an expense 
C)  A change from declining-balance depreciation method to straight-line method 
D)  Change in percentage of sales used for determining bad debt expense 
A)  The estimate of the useful life of a depreciable asset should have been revised. 
B)  Capitalization of an expense 
C)  A change from declining-balance depreciation method to straight-line method 
D)  Change in percentage of sales used for determining bad debt expense

Question 12

The ending inventory for Wyeth Company was overstated by $6,000 in 2014.The overstatement will cause Wyeth Company's

Accepted Answer

A)  retained earnings to be understated on the 2014 balance sheet. 
B)  2015 balance sheet not to be misstated 
C)  cost of goods sold to be overstated on the 2014 income statement. 
D)  cost of goods sold to be understated on the 2015 income statement. 
A)  retained earnings to be understated on the 2014 balance sheet. 
B)  2015 balance sheet not to be misstated 
C)  cost of goods sold to be overstated on the 2014 income statement. 
D)  cost of goods sold to be understated on the 2015 income statement.

Question 13

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

Accepted Answer

A)  by showing the pro forma effects of retroactive application. 
B)  by restating the financial statements of all prior periods presented. 
C)  in the period of change and future periods 
D)  as a correction of an error. 
A)  by showing the pro forma effects of retroactive application. 
B)  by restating the financial statements of all prior periods presented. 
C)  in the period of change and future periods 
D)  as a correction of an error.

Question 14

Newsman Co.made the following errors in counting its year-end physical inventories:   As a result of the above undetected errors,2014 income was

Accepted Answer

A)  understated by $18,000. 
B)  overstated by $198,000. 
C)  overstated by $18,000. 
D)  understated by $198,000. 
A)  understated by $18,000. 
B)  overstated by $198,000. 
C)  overstated by $18,000. 
D)  understated by $198,000.

Question 15

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

Accepted Answer

A)  A company acquires a subsidiary that is to be accounted for as a purchase. 
B)  A company presents consolidated or combined statements in place of statements of individual companies. 
C)  A company changes the companies included in combined financial statements. 
D)  A company changes the subsidiaries for which consolidated statements are presented. 
A)  A company acquires a subsidiary that is to be accounted for as a purchase. 
B)  A company presents consolidated or combined statements in place of statements of individual companies. 
C)  A company changes the companies included in combined financial statements. 
D)  A company changes the subsidiaries for which consolidated statements are presented.

Question 16

On January 2,2012,Lynch Company acquired machinery at a cost of $800,000.This machinery was being depreciated by the double-declining-balance method over an estimated useful life of eight years,with no residual value.At the beginning of 2014,Lynch decided to change to the straight-line method of depreciation.Ignoring income tax considerations,the cumulative effect of this accounting change is

Accepted Answer

A)  $0. 
B)  $100,000. 
C)  $155,556 
D)  $177,778 
A)  $0. 
B)  $100,000. 
C)  $155,556 
D)  $177,778

Question 17

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?

Accepted Answer

A)  Both the January 1,2013,and January 1,2014,retained earnings balances are reported at different amounts to reflect the effects of the change in earnings before those respective dates. 
B)  Only the January 1,2013,retained earnings balance is reported at a different amount to reflect the effects of the change in earnings. 
C)  Only the January 1,2014,retained earnings balance is reported at a different amount to reflect the effects of the change in earnings. 
D)  No direct change to retained earnings is needed since earnings for both years have been adjusted to reflect the change. 
A)  Both the January 1,2013,and January 1,2014,retained earnings balances are reported at different amounts to reflect the effects of the change in earnings before those respective dates. 
B)  Only the January 1,2013,retained earnings balance is reported at a different amount to reflect the effects of the change in earnings. 
C)  Only the January 1,2014,retained earnings balance is reported at a different amount to reflect the effects of the change in earnings. 
D)  No direct change to retained earnings is needed since earnings for both years have been adjusted to reflect the change.

Question 18

Ending inventory for 2012 is overstated by $5,500 due to a faulty count and costing.The tax rate is 39%.Assume the same accounting methods for both financial reporting and taxes.The error is discovered late in 2014.The 2014 annual report shows the financial statements for 2012,2013,2014 on a comparative basis. Which of the following is correct regarding the reporting of this error in the 2014 annual report?

Accepted Answer

A)  A journal entry is made to report the prior period adjustment,and the 2012 and 2013 statements are shown corrected. 
B)  No journal entry is needed,and the 2012 and 2013 statements are shown as they were in the 2013 annual report. 
C)  No journal entry is needed,and the 2012 and 2013 statements are shown corrected. 
D)  A journal entry is made to report the prior period adjustment,and the 2012 and 2013 statements are shown as they were in the 2013 annual report. 
A)  A journal entry is made to report the prior period adjustment,and the 2012 and 2013 statements are shown corrected. 
B)  No journal entry is needed,and the 2012 and 2013 statements are shown as they were in the 2013 annual report. 
C)  No journal entry is needed,and the 2012 and 2013 statements are shown corrected. 
D)  A journal entry is made to report the prior period adjustment,and the 2012 and 2013 statements are shown as they were in the 2013 annual report.

Question 19

In 2014,a company changed from the LIFO method of accounting for inventory to FIFO.The company's 2013 and 2014 comparative financial statements will reflect which method or methods? 2013 2014

Accepted Answer

A)  LIFO LIFO 
B)  FIFO FIFO 
C)  LIFO FIFO 
D)  LIFO either LIFO or FIFO 
A)  LIFO LIFO 
B)  FIFO FIFO 
C)  LIFO FIFO 
D)  LIFO either LIFO or FIFO

Question 20

Asuncion Company purchased some equipment on January 2,2011,for $24,000.The company used straight-line depreciation based on a ten-year estimated life with no residual value.During 2014,management decided that this equipment could be used only three more years and then would be replaced with a technologically superior model.What entry should the company make as of January 1,2014,to reflect this change?

Accepted Answer

A)  No entry 
B)  Debit a Prior Period Adjustment account for $4,800 and credit accumulated depreciation for $4,800. 
C)  Debit Retained Earnings for $4,800 and credit accumulated depreciation for $4,800. 
D)  Debit Depreciation Expense for $4,800 and credit Accumulated Depreciation for $4,800. 
A)  No entry 
B)  Debit a Prior Period Adjustment account for $4,800 and credit accumulated depreciation for $4,800. 
C)  Debit Retained Earnings for $4,800 and credit accumulated depreciation for $4,800. 
D)  Debit Depreciation Expense for $4,800 and credit Accumulated Depreciation for $4,800.

Which of the following is not correct regarding the provisions of IAS No.8 on accounting changes and error corrections?

Which of the following is characteristic of a change in accounting principle?

Which of the following should NOT be reported retroactively?

Which of the following is not an example of an accounting error,as distinguished from a change in accounting principle or change in accounting estimate?

For a company with a periodic inventory system,which of the following would cause income to be overstated in the period of occurrence?

Which of the following is characteristic of a change in accounting estimate?

The cumulative effect on prior years' earnings of a change in accounting principle should be reported separately as an adjustment to retained earnings for the earliest period presented for all of the following changes except

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?

The ending inventory for Wyeth Company was overstated by $6,000 in 2014.The overstatement will cause Wyeth Company's

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

Newsman Co.made the following errors in counting its year-end physical inventories: As a result of the above undetected errors,2014 income was

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

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?

In 2014,a company changed from the LIFO method of accounting for inventory to FIFO.The company's 2013 and 2014 comparative financial statements will reflect which method or methods? 2013 2014

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 the provisions of IAS No.8 on accounting changes and error corrections?

Which of the following is characteristic of a change in accounting principle?

Which of the following should NOT be reported retroactively?

Which of the following is not an example of an accounting error,as distinguished from a change in accounting principle or change in accounting estimate?

For a company with a periodic inventory system,which of the following would cause income to be overstated in the period of occurrence?

Which of the following is characteristic of a change in accounting estimate?

The cumulative effect on prior years' earnings of a change in accounting principle should be reported separately as an adjustment to retained earnings for the earliest period presented for all of the following changes except

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?

The ending inventory for Wyeth Company was overstated by $6,000 in 2014.The overstatement will cause Wyeth Company's

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

Newsman Co.made the following errors in counting its year-end physical inventories: As a result of the above undetected errors,2014 income was

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

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?

In 2014,a company changed from the LIFO method of accounting for inventory to FIFO.The company's 2013 and 2014 comparative financial statements will reflect which method or methods? 2013 2014

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