Exam 20: Accounting Changes and Error Corrections

Nevada Enterprises purchased a machine on January 2,2013,at a cost of $140,000.An additional $70,000 was spent for installation,but this amount was charged erroneously to repairs expense.The machine has a useful life of five years and a salvage value of $40,000.As a result of the error,

On December 27,2014,Admission Company ordered merchandise for resale from Eviction,Inc. ,that cost $7,000 (terms cash within 10 days).Eviction shipped the merchandise f.o.b.shipping point on December 28,2014,and the goods arrived on January 2,2015.The invoice was received on December 30,2014.Admission Company did not record the purchase in 2014 and did not include the goods in ending inventory.The effects on Admission Company's 2014 financial statements were

Which of the following should be reported as a change in accounting estimate?

A change in the estimated useful life of a building

Pages,Inc.receives subscription payments for annual (one year)subscriptions to its magazine.Payments are recorded as revenue when received.Amounts received but unearned at the end of each of the last three years are shown below. Pages failed to record the unearned revenues in each of the three years.The entry needed to correct the above errors is

Improved Technologies has estimated bad debts using the percentage-of-sales method since their business began operations in 2011.Information relating to bad debts and sales is as follows: At the beginning of 2014,Improved proposes changing their estimation of bad debt expense from 3 percent of sales to 2.5 percent.Sales for the year totaled $186,000 and actual bad debts amounted to $3,910.

Which of the following is a counterbalancing error?

A company changes from an accounting principle that is not generally accepted to one that is generally accepted.The effect of the change should be reported as a

Which of the following statements is not correct?

Ranger Company uses a periodic inventory system.If the company's beginning inventory in the current year is overstated,and that is the only error in the current year,then the company's income for the current year will be

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?

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

On December 31,2014,Ohio Corporation appropriately changed its inventory valuation method to FIFO cost from LIFO cost for both financial statement and income tax purposes.The change will result in a $140,000 increase in the beginning inventory at January 1,2014.Assume a 30 percent income tax rate.The cumulative effect of this accounting change Ohio for the year ended December 31,2014,is

On January 1,2011,Shine Services Inc.purchased a new machine for $600,000.The machine had an estimated useful life of eight years and a salvage value of $150,000.Shine elected to depreciate the machine using the double-declining-balance method.On January 1,2014,the company decided to change to straight-line depreciation. Ignoring income tax considerations,prepare the entries to record

An accounting change that requires the retrospective approach is a change in

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

The September 30,2014,physical inventory of Pollack Corporation appropriately included $6,300 of merchandise purchased on account that was not recorded in purchases until October 2014.What effect will this error have on September 30,2014,assets,liabilities,retained earnings,and earnings for the year then ended,respectively?