Deck 22: Accounting Changes and Error Analysis

Question 1

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

Answer 1

True

Question 2

Counterbalancing errors are those that will be offset and that take longer than two periods to correct themselves.

Answer 2

False

Question 3

One of the disclosure requirements for a change in accounting policy is to show the cumulative effect of the change on retained earnings as of the beginning of the earliest period presented.

Answer 3

True

Question 4

Statement of financial position errors affect only the presentation of an asset or liability account.

Question 5

Adoption of a new policy in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change.

Question 6

Companies account for a change in depreciation methods as a change in accounting policy.

Question 7

Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so.

Question 8

The ISAB is silent on the application of the direct effects of a change in accounting policy.

Question 9

A change in accounting policy is a change that occurs as the result of new information or additional experience.

Question 10

Companies record corrections of errors from prior periods as an adjustment to the beginning balance of retained earnings in the current period.

Question 11

The requirements for disclosure are the same whether a change is voluntary or is mandated by the issuance of a new IFRS.

Question 12

When a company changes an accounting policy, it should report the change by reporting the cumulative effect of the change in the current year's income statement.

Question 13

Companies report changes in accounting estimates retrospectively.

Question 14

An indirect effect of an accounting change is any change to current or future cash flows of a company that result from making a change in accounting policy that is applied retrospectively.

Question 15

The new IFRS on financial instruments will be subject to the proper accounting for changes in accounting policy.

Question 16

Retrospective application refers to the application of a different accounting policy to recast previously issued financial statements-as if the new policy had always been used.

Question 17

When it is impossible to determine whether a change in policy or change in estimate has occurred, the change is considered a change in estimate.

Question 18

Under U.S.GAAP, the impracticality exception applies both to changes in accounting policies and to the correction of errors.

Question 19

Accounting errors include changes in estimates that occur because a company acquires more experience, or as it obtains additional information.

Question 20

If an IASB standard creates a new policy, expresses preference for, or rejects a specific accounting policy, the change is considered clearly acceptable.

Question 21

Which of the following is accounted for as a change in accounting policy?

A)A change in the estimated useful life of plant assets.
B)A change from the cash basis of accounting to the accrual basis of accounting.
C)A change from expensing immaterial expenditures to deferring and amortizing them as they become material.
D)A change in inventory valuation from average cost to FIFO.

Question 22

Which type of accounting change should always be accounted for in current and future periods?

A)Change in accounting policy
B)Change in reporting entity
C)Change in accounting estimate
D)Correction of an error

Question 23

Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate?

A)Current period and prospectively
B)Current period and retrospectively
C)Retrospectively only
D)Current period only

Question 24

Companies must make correcting entries for noncounterbalancing errors, even if they have closed the prior year's books.

Question 25

A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes.The entry to record this change should include a

A)credit to Accumulated Depreciation.
B)debit to Retained Earnings in the amount of the difference on prior years.
C)debit to Deferred Tax Asset.
D)credit to Deferred Tax Liability.

Question 26

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a

A)change in accounting policy.
B)change in accounting estimate.
C)prior period adjustment.
D)correction of an error.

Question 27

Stone Company changed its method of pricing inventories from average cost to FIFO.What type of accounting change does this represent?

A)A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.
B)A change in accounting policy for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.
C)A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated.
D)A change in accounting policy for which the financial statements for prior periods included for comparative purposes should be restated.

Question 28

If a particular transaction is not specifically addressed by IFRS, where should an accountant turn to find a hierarchy of guidance to be consicered in the selection of an accounting policy?

A)accounting standards from other countries
B)IAS 8
C)the company's board of directors
D)the company's external auditors

Question 29

An income statement classification error has no effect on the statement of financial position and no effect on net income.

Question 30

IASB requires companies to use which method for reporting changes in accounting policies?

A)cumulative effect approach
B)retrospective approach
C)prospective approach
D)averaging approach

Question 31

Which of the following disclosures is not required for a change from average cost to FIFO?

A)Basic and diluted earnings per share for the current period and each prior period presented
B)The nature of the change in accounting policy
C)The amount of the adjustment relating to periods before those presented
D)All of these are required.

Question 32

A company changes from percentage-of-completion to cost-recovery, which is the method used for tax purposes.The entry to record this change should include a

A)debit to Construction in Process.
B)debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax.
C)debit to Retained Earnings in the amount of the difference on prior years, net of tax.
D)credit to Deferred Tax Liability.

Question 33

The accounting for change in estimates differs between U.S.GAAP and IFRS.

Question 34

Which of the following is not a retrospective-type accounting change?

A)Cost-recovery method to the percentage-of-completion method for long-term contracts
B)Cost-recovery method to the FIFO method for inventory valuation
C)Sum-of-the-years'-digits method to the straight-line method
D)"Full cost" method to another method in the extractive industry

Question 35

The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years.Based on this information, the accountant should

A)continue to depreciate the building over the original 50-year life.
B)depreciate the remaining book value over the remaining life of the asset.
C)adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.
D)adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

Question 36

For counterbalancing errors, restatement of comparative financial statements is necessary even if a correcting entry is not required.

Question 37

Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of

A)materiality.
B)consistency.
C)prudence.
D)objectivity.

Question 38

Which of the following would be a reason where IASB would permit companies to change accounting policy?

A)The change would allow the company to present a more favorable profit picture.
B)The change would result in the financial statements providing more reliable and relevant information about a company`s financial position, financial performance, and cash flows.
C)The change is made by the internal auditor.
D)The change will be long-term.

Question 39

Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line?

A)The cumulative effect on prior years, net of tax, in the current retained earnings statement
B)Restatement of prior years' income statements
C)Recomputation of current and future years' depreciation
D)All of these are required.

Question 40

Which of the following is not treated as a change in accounting policy?

A)A change from average cost to FIFO for inventory valuation
B)A change to a different method of depreciation for plant assets
C)A change from full-cost to successful efforts in the extractive industry
D)A change from cost-recovery to percentage-of-completion

Question 41

All of the following statements are true regarding IASB's guideline that companies must demonstrate change in accounting policy as preferable or as an improvement, except:

A)Diversity in situations and characteristics of the items encountered in practice require the use of professional judgment.
B)Changes in accounting policy are appropriate only when a company demonstrates that the newly adopted generally accepted accounting policy is more relevant and reliable than the existing one.
C)Changes in accounting policy are appropriate only when a company demonstrates an improved income tax effect alone.
D)None of these; all statements are true.

Question 42

Equipment was purchased at the beginning of 2009 for $204,000.At the time of its purchase, the equipment was estimated to have a useful life of six years and a residual value of $24,000.The equipment was depreciated using the straight-line method of depreciation through 2011.At the beginning of 2012, the estimate of useful life was revised to a total life of eight years and the expected residual value was changed to $15,000.The amount to be recorded for depreciation for 2012, reflecting these changes in estimates, is

A)$12,375.
B)$19,800.
C)$22,800.
D)$23,625.

Question 43

Use the following information for questions.
Ventura Corporation purchased machinery on January 1, 2009 for $630,000.The company used the sum-of-the-years'-digits method and no salvage value to depreciate the asset for the first two years of its estimated six-year life.In 2010, Ventura changed to the straight-line depreciation method for this asset.The following facts pertain:

The amount that Ventura should report for depreciation expense on its 2011 income statement is

A)$120,000.
B)$105,000.
C)$75,000.
D)none of the above.

Question 44

Heinz Company began operations on January 1, 2010, and uses the FIFO method in costing its raw material inventory.Management is contemplating a change to the average cost method and is interested in determining what effect such a change will have on net income.Accordingly, the following information has been developed:

Based on the above information, a change to the average cost method in 2011 would result in net income for 2011 of

A)$1,120,000.
B)$1,080,000.
C)$1,004,000.
D)$1,000,000.

Question 45

On December 31, 2011 Dean Company changed its method of accounting for inventory from the average cost method to the FIFO method.This change caused the 2011 beginning inventory to increase by $420,000.The cumulative effect of this accounting change to be reported for the year ended 12\31\11, assuming a 40% tax rate, is

A)$420,000.
B)$252,000.
C)$168,000.
D)$0.

Question 46

Why does IASB prohibit retrospective treatment of changes in accounting estimates?

A)The IASB view changes in estimates as normal recurring corrections and adjustments, which are the natural result of the accounting process.
B)The IASB does not allow the retrospective treatment for any type of presentation.
C)The IASB prohibits retrospective treatment of changes in accounting estimates because IFRS requires it.
D)IASB does not prohibit retrospective treatment of changes in accounting estimates, but is silent on this issue

Question 47

Use the following information for questions.
Swift Company purchased a machine on January 1, 2009, for $300,000.At the date of acquisition, the machine had an estimated useful life of six years with no residual value.The machine is being depreciated on a straight-line basis.On January 1, 2012, Swift determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no residual value.An accounting change was made in 2012 to reflect this additional information.
Assume that the direct effects of this change are limited to the effect on depreciation and the related tax provision, and that the income tax rate was 30% in 2009, 2010, 2011, and 2012.What should be reported in Swift's income statement for the year ended December 31, 2012, as the cumulative effect on prior years of changing the estimated useful life of the machine?

A)$0
B)$20,000
C)$30,000
D)$105,000

Question 48

On January 1, 2009, Knapp Corporation acquired machinery at a cost of $250,000.Knapp adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value.At the beginning of 2012, a decision was made to change to the straight-line method of depreciation for the machinery.The depreciation expense for 2012 would be

A)$12,800.
B)$18,286.
C)$25,000.
D)$35,714.

Question 49

Use the following information for questions.
On January 1, 2009, Nobel Corporation acquired machinery at a cost of $600,000.Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value.At the beginning of 2012, a decision was made to change to the double-declining balance method of depreciation for this machine.
The amount that Nobel should record as depreciation expense for 2012 is

A)$60,000.
B)$84,000.
C)$120,000.
D)none of the above.

Question 50

Sun construction company decided at the beginning of 2012 to change from the cost-recovery method to the percentage-of-completion method for financial reporting purposes.The company will continue to use the cost-recovery method for tax purposes.For years prior to 2012, pretax income under the two methods was as follows: percentage-of-completion £120,000, and cost-recovery £80,000.The tax rate is 35%.sun's 2012 journal entry to record the change in accounting policy will include:

A)a debit to Retained Earnings for £40,000.
B)a credit to Construction in Process for £40,000.
C)a debit to Deferred Tax Asset for £14,000.
D)a credit to deferred Tax Liability for £14,000

Question 51

Use the following information for questions.
Ventura Corporation purchased machinery on January 1, 2009 for $630,000.The company used the sum-of-the-years'-digits method and no salvage value to depreciate the asset for the first two years of its estimated six-year life.In 2010, Ventura changed to the straight-line depreciation method for this asset.The following facts pertain:

Ventura is subject to a 40% tax rate.The cumulative effect of this accounting change on beginning retained earnings is

A)$135,000.
B)$120,000.
C)$72,000.
D)$0.

Question 52

Which of the following statements is correct?

A)Changes in accounting policy are always handled in the current or prospective period.
B)Prior statements should be restated for changes in accounting estimates.
C)A change from expensing certain costs to capitalizing these costs due to a change in the period benefited, should be handled as a change in accounting estimate.
D)Correction of an error related to a prior period should be considered as an adjustment to current year net income.

Question 53

Jacob, Inc., changed from the average cost to the FIFO cost flow assumption in 2012.the increase in the prior year`s income before taxes is €1,100,000.The tax rate is 35%.Jacob's 2012 journal entry to record the change in accounting policy will include.

A)a debit to Retained Earnings for €1,100,000.
B)a credit to Retained Earnings for €1,100,000.
C)a debit to Inventory for €715,000.
D)a credit to deferred Tax Liability for €385,000

Question 54

Lanier Company began operations on January 1, 2010, and uses the FIFO method in costing its raw material inventory.Management is contemplating a change to the average cost method and is interested in determining what effect such a change will have on net income.Accordingly, the following information has been developed:

Based upon the above information, a change to the average cost method in 2011 would result in net income for 2011 of

A)$540,000.
B)$600,000.
C)$620,000.
D)$660,000.

Question 55

Use the following information for questions.
Ventura Corporation purchased machinery on January 1, 2009 for $630,000.The company used the sum-of-the-years'-digits method and no salvage value to depreciate the asset for the first two years of its estimated six-year life.In 2010, Ventura changed to the straight-line depreciation method for this asset.The following facts pertain:

During 2011, a construction company changed from the cost-recovery method to the percentage-of-completion method for accounting purposes but not for tax purposes.Gross profit figures under both methods for the past three years appear below:

Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of

A)$600,000 on the 2011 income statement.
B)$390,000 on the 2011 income statement.
C)$600,000 on the 2011 retained earnings statement.
D)$390,000 on the 2011 retained earnings statement.

Question 56

Detmer Constuction Company decided at the beginning of 2012 to change from the cost-recovery method to the percentage-of-completion method for financial reporting purposes.The company will continue to use the cost-recovery method for tax purposes.For years prior to 2012, pretax income under the two methods was as follows: percentage-of-completion £144,000, and cost-recovery £114,000.The tax rate is 35%.Detmer has a profit-sharing plan, which pays all employees a bonus at year-end based on 1.5% of pretax income.What is the amount of the indirect effect of Detmer's change in accounting policy that will be reported in the 2012 income statement, assuming that the profit-sharing contract explicitly requires adjustment for changes in income numbers?

A)£2,160
B)£1,710
C)£ 450
D)£ 954

Question 57

An example of a correction of an error in previously issued financial statements is a change

A)from the FIFO method of inventory valuation to the average cost method.
B)in the service life of plant assets, based on changes in the economic environment.
C)from the cash basis of accounting to the accrual basis of accounting.
D)in the tax assessment related to a prior period.

Question 58

Use the following information for questions.
On January 1, 2009, Nobel Corporation acquired machinery at a cost of $600,000.Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value.At the beginning of 2012, a decision was made to change to the double-declining balance method of depreciation for this machine.
Assuming a 30% tax rate, the cumulative effect of this accounting change on beginning retained earnings, is

A)$67,200.
B)$0.
C)$78,960.
D)$112,800.

Question 59

On January 1, 2009, Piper Co., purchased a machine (its only depreciable asset) for $300,000.The machine has a five-year life, and no salvage value.Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting.Effective January 1, 2012, for financial statement reporting, Piper decided to change to the straight-line method for depreciation of the machine.Assume that Piper can justify the change.
Piper's income before depreciation, before income taxes, and before the cumulative effect of the accounting change (if any), for the year ended December 31, 2012, is $250,000.The income tax rate for 2012, as well as for the years 2009-2011, is 30%.What amount should Piper report as net income for the year ended December 31, 2012?

A)$60,000
B)$91,000
C)$154,000
D)$175,000

Question 60

On January 1, 2009, Neal Corporation acquired equipment at a cost of $540,000.Neal adopted the sum-of-the-years'-digits method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value.At the beginning of 2012, a decision was made to change to the straight-line method of depreciation for this equipment.The depreciation expense for 2012 would be

A)$28,125.
B)$45,000.
C)$67,500.
D)$108,000.

Question 61

Use the following information for questions.
Langley Company's December 31 year-end financial statements contained the following errors:

An insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012.The prepayment was recorded with a debit to insurance expense.In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012.There were no other errors during 2011 or 2012 and no corrections have been made for any of the errors.Ignore income tax considerations.
What is the total effect of the errors on the balance of Langley's retained earnings at December 31, 2011?

A)Retained earnings understated by $10,000
B)Retained earnings understated by $4,500
C)Retained earnings understated by $2,500
D)Retained earnings overstated by $3,500

Question 62

Use the following information for questions.
Swift Company purchased a machine on January 1, 2009, for $300,000.At the date of acquisition, the machine had an estimated useful life of six years with no residual value.The machine is being depreciated on a straight-line basis.On January 1, 2012, Swift determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no residual value.An accounting change was made in 2012 to reflect this additional information.
What is the amount of depreciation expense on this machine that should be charged in Swift's income statement for the year ended December 31, 2012?

A)$30,000
B)$37,500
C)$60,000
D)$75,000

Question 63

Use the following information for questions.
Link Co.purchased machinery that cost $810,000 on January 4, 2009.The entire cost was recorded as an expense.The machinery has a nine-year life and a $54,000 residual value.The error was discovered on December 20, 2011.Ignore income tax considerations.
Link's income statement for the year ended December 31, 2011, should show the cumulative effect of this error in the amount of

A)$726,000.
B)$642,000.
C)$558,000.
D)$0.

Question 64

Use the following information for questions.
Bishop Co.began operations on January 1, 2010.Financial statements for 2010 and 2011 con- tained the following errors:
In addition, on December 31, 2011 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2012.No corrections have been made for any of the errors.Ignore income tax considerations.

The total effect of the errors on the amount of Bishop's working capital at December 31, 2011 is understated by

A)$400,800.
B)$316,800.
C)$184,800.
D)$124,800.

Question 65

Use the following information for questions.
Langley Company's December 31 year-end financial statements contained the following errors:

An insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012.The prepayment was recorded with a debit to insurance expense.In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012.There were no other errors during 2011 or 2012 and no corrections have been made for any of the errors.Ignore income tax considerations.
Accrued salaries payable of $51,000 were not recorded at December 31, 2010.Office supplies on hand of $24,000 at December 31, 2011 were erroneously treated as expense instead of supplies inventory.Neither of these errors was discovered nor corrected.The effect of these two errors would cause

A)2011 net income to be understated $75,000 and December 31, 2011 retained earnings to be understated $24,000.
B)2010 net income and December 31, 2010 retained earnings to be understated $51,000 each.
C)2010 net income to be overstated $27,000 and 2011 net income to be understated $24,000.
D)2011 net income and December 31, 2011 retained earnings to be understated $24,000 each.

Question 66

Use the following information for questions.
Link Co.purchased machinery that cost $810,000 on January 4, 2009.The entire cost was recorded as an expense.The machinery has a nine-year life and a $54,000 residual value.The error was discovered on December 20, 2011.Ignore income tax considerations.
Before the correction was made, and before the books were closed on December 31, 2011, retained earnings was understated by

A)$810,000.
B)$726,000.
C)$642,000.
D)$558,000.

Question 67

Use the following information for questions.
In January 2012, Marcus Ltd.has installation costs of £9,000 on new machinery that were charged to Repair Expense.Other costs of this machinery of £30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no residual value.At December 31,2012, Marcus decides that the machinery ha a remaining useful life of 15 years, starting with January 1,2012
If the book have not been closed for 2012 and depreciation expense has not yet been recorded for 2012, the entry that marcus makes in 2012 to record depreciation on the machinery acquired in January, 2011, will include:

A)a debit to Depreciation Expense for £2,600
B)a credit to Accumulated Depreciation for £900.
C)a debit to Depreciation Expense for £3,900
D)a credit to Depreciation Expense for £2,340

Question 68

Use the following information for questions.
Armstrong Inc.is a calendar-year corporation.Its financial statements for the years ended 12\31\10 and 12\31\11 contained the following errors:

Assume that no correcting entries were made at 12\31\10, or 12\31\11.Ignoring income taxes, by how much will retained earnings at 12\31\11 be overstated or understated?

A)$24,000 overstatement
B)$21,000 overstatement
C)$30,000 understatement
D)$9,000 understatement

Question 69

Use the following information for questions.
Langley Company's December 31 year-end financial statements contained the following errors:

An insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012.The prepayment was recorded with a debit to insurance expense.In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012.There were no other errors during 2011 or 2012 and no corrections have been made for any of the errors.Ignore income tax considerations.
What is the total net effect of the errors on Langley's 2011 net income?

A)Net income understated by $14,500.
B)Net income overstated by $7,500.
C)Net income overstated by $13,000.
D)Net income overstated by $15,000.

Question 70

Use the following information for questions.
In January 2012, Marcus Ltd.has installation costs of £9,000 on new machinery that were charged to Repair Expense.Other costs of this machinery of £30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no residual value.At December 31,2012, Marcus decides that the machinery ha a remaining useful life of 15 years, starting with January 1,2012
In 2012, Krasny Corporation discovered that equipment purchased on January 1,2010, for €52,500 was expensed at that time.The equipment should have been depreciated over 5 years, with no residual value.The effective tax rate is 30%.Krasny's 2012 journal entry to correct the error would include

A)a credit to Equipment for €52,500
B)a debit to Retained Earnings for €52,500.
C)a credit to Retained Earnings for €22,050.
D)a credit to Deferred Tax Liability for €15,750.

Question 71

Use the following information for questions.
Langley Company's December 31 year-end financial statements contained the following errors:

An insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012.The prepayment was recorded with a debit to insurance expense.In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012.There were no other errors during 2011 or 2012 and no corrections have been made for any of the errors.Ignore income tax considerations.
What is the total net effect of the errors on the amount of Langley's working capital at December 31, 2011?

A)Working capital overstated by $5,000
B)Working capital overstated by $1,500
C)Working capital understated by $4,500
D)Working capital understated by $12,000

Question 72

Use the following information for questions.
Bishop Co.began operations on January 1, 2010.Financial statements for 2010 and 2011 con- tained the following errors:
In addition, on December 31, 2011 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2012.No corrections have been made for any of the errors.Ignore income tax considerations.

The total effect of the errors on the balance of Bishop's retained earnings at December 31, 2011 is understated by

A)$328,800.
B)$268,800.
C)$184,800.
D)$136,800.

Question 73

Use the following information for questions.
Ernst Company purchased equipment that cost $750,000 on January 1, 2010.The entire cost was recorded as an expense.The equipment had a nine-year life and a $30,000 residual value.Ernst uses the straight-line method to account for depreciation expense.The error was discovered on December 10, 2012.Ernst is subject to a 40% tax rate.
Before the correction was made and before the books were closed on December 31, 2012, retained earnings was understated by

A)$332,000.
B)$336,000.
C)$354,000.
D)$450,000.

Question 74

Use the following information for questions.
In January 2012, Marcus Ltd.has installation costs of £9,000 on new machinery that were charged to Repair Expense.Other costs of this machinery of £30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no residual value.At December 31,2012, Marcus decides that the machinery ha a remaining useful life of 15 years, starting with January 1,2012
If the book have not been closed for 2012 and depreciation expense has not yet been recorded for 2012, the entry that marcus makes in 2012 to correct for the error of expensing installation costs on the machinery acquired in January, 2011, will include:

A)a debit to Retained Earnings for £9,000
B)a credit to Retained Earnings for £9,000.
C)a debit to Retained Earnings for £8,100.
D)a credit to Retained Earnings for £8,100.

Question 75

Use the following information for questions.
Bishop Co.began operations on January 1, 2010.Financial statements for 2010 and 2011 con- tained the following errors:
In addition, on December 31, 2011 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2012.No corrections have been made for any of the errors.Ignore income tax considerations.

The total effect of the errors on Bishop's 2011 net income is

A)understated by $376,800.
B)understated by $244,800.
C)overstated by $115,200.
D)overstated by $199,200.

Question 76

Use the following information for questions.
Armstrong Inc.is a calendar-year corporation.Its financial statements for the years ended 12\31\10 and 12\31\11 contained the following errors:

Assume that the 2010 errors were not corrected and that no errors occurred in 2009.By what amount will 2010 income before income taxes be overstated or understated?

A)$21,000 overstatement
B)$9,000 overstatement
C)$21,000 understatement
D)$9,000 understatement

Question 77

Use the following information for questions.
Swift Company purchased a machine on January 1, 2009, for $300,000.At the date of acquisition, the machine had an estimated useful life of six years with no residual value.The machine is being depreciated on a straight-line basis.On January 1, 2012, Swift determined, as a result of additional information, that the machine had an estimated useful life of eight years from the date of acquisition with no residual value.An accounting change was made in 2012 to reflect this additional information.
Brittany Company purchased a computer system for £94,250 on January 1, 2011.it was depreciated based on a 7-year life and an £19,000 residual value.On January 1,2013,Brittany revised these estimates to a total useful life of 4 years and a residual value of £10,000.Brittany's entry to record 2013 depreciation expense will inclide debit to Depreciation Expense for:

A)£75,250
B)£72,750
C)£19,000
D)£31,375

Question 78

Use the following information for questions.
Ernst Company purchased equipment that cost $750,000 on January 1, 2010.The entire cost was recorded as an expense.The equipment had a nine-year life and a $30,000 residual value.Ernst uses the straight-line method to account for depreciation expense.The error was discovered on December 10, 2012.Ernst is subject to a 40% tax rate.
Ernst's net income for the year ended December 31, 2010, was understated by

A)$402,000.
B)$450,000.
C)$670,000.
D)$750,000.