Deck 21: Accounting Changes

Question 1

In 20x4, a firm discovered that $10,000 of equipment purchased on 1/1/x1 was expensed in full.The equipment has a ten-year life, has no residual value, and should have been depreciated on the straight-line basis.The error is corrected.As a result, the comparative 20x3 and 20x4 financial statements will show what amounts as adjustments to the beginning balances of retained earnings dated:

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Answer 1

D

Question 2

At the end of Year 1, ABC Inc.'s inventories were overstated by $10,000.At the end of Year 2 its inventories were overstated by $20,000.Assuming that ABC Inc.is subject to a 20% tax rate, the effect of these overstatements on the company's Year 2 ending Retained Earnings would be an:

A)Overstatement of $24,000.
B)Overstatement of $30,000.
C)Overstatement of $16,000.
D)Understatement of $16,000.

Answer 2

C

Question 3

An asset that costs $4,000 on January 1, 20x1, is being depreciated on the basis of a 10% straight-line rate.On January 1, 20x2, an ordinary repair of $600 was debited to the asset account and also was depreciated in the same way.As a result, 20x2 pre-tax income was:

A)Overstated by $540.
B)Understated by $60.
C)Overstated by $600.
D)Understated by $600.

Answer 3

A

Question 4

A corporation has a machine that cost $100,000, with an estimated useful life of 5 years and a residual value of $25,000.Immediately after the end of the second year, the company decided to change from SYD to straight-line depreciation.The entry to record the change would include an effect on accumulated depreciation which would be a:

A)$30,000 credit.
B)$15,000 credit.
C)$30,000 debit.
D)$15,000 debit.

Question 5

Which one of the following statements is not correct?

A)A change from an inappropriate accounting principle to a proper one should be accounted for as an accounting error.
B)Use of straight-line depreciation gives a higher total expense than accelerated methods over the total useful life of the asset.
C)Assets purchased on the 14th of the month may be depreciated from the first of the month for practical reasons.
D)Depreciation accounting is a process of allocation of periodic expense, rather than one of asset valuation.

Question 6

A firm changed from completed contract to percentage of completion for revenue recognition on long-term construction contracts in 20x7.This change had the following effects on earnings: Increase in earnings All years retained earnings balances before 20x6 100,000
By what amounts are the beginning retained earnings balances for 20x6 and 20x7 adjusted, if the 20x6 and 20x7 statements are shown comparatively.

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4
E)Choice 5

Question 7

A plant asset was purchased for $19,000 on 1/1/x0 with a residual value of $2,000 and useful life of five years.In 20x3, the total useful life is re-estimated to be seven years and the estimated salvage value is assumed to be zero.Sum-of-the-year's-digits depreciation is used.What is depreciation expense in 20x3?

A)$2,160
B)$2,340
C)$1,210
D)$1,350

Question 8

The records of CTC reported rent expense for 20x5 (paid in cash during 20x5)of $53,500.An audit revealed that the following accrued and prepaid amounts were not recorded in the adjusting entries for 20x4 and 20x5: What amount should have been reported for 20x5 rent expense?

A)$46,500
B)$60,500
C)$53,500
D)$64,000

Question 9

If the estimated useful life of an asset was originally 10 years and then later changed to 12 years, the effects of this change should be:

A)Reported and recorded retrospectively, including pro forma financial statements in the year of change.
B)Spread over the current and future periods.
C)Recorded in an adjustment to the Accumulated Depreciation account and the Retained Earnings account in the year of change.
D)Reported as a special item on the income statement in the year it occurs.

Question 10

An example of a special change in accounting principle that should be reported by restating the financial statements of prior periods is the change from the:

A)FIFO method of inventory valuation to the Weighted Average method.
B)Straight-line method of depreciating plant equipment to the sum-of-the-years'-digits method.
C)Sum-of-the-years'-digits method of depreciating plant equipment to the straight-line method.
D)All of these choices are correct.

Question 11

In reporting the effect of an accounting change on comparative financial statements, recommended accounting procedure requires that the following be used for correcting an accounting error:

A)Prospective application.
B)Retrospective application.
C)Future application.
D)Retrospective, no restatement application.

Question 12

ABC Inc.'s Year 1 ending inventory was overstated by $20,000.Its Year 2 ending inventory was understated by $30,000.Assuming that the books for Year 2 are now closed, which of the following adjustments would be required? Assume a tax rate of 25%.

A)Please see the following table:

B)Please see the following table:

C)Please see the following table:

D)Please see the following table:

Question 13

The errors listed below occurred in 20x3 but were not discovered until much later in 20x4 The accounting period ends December 31. What net effect did these errors have on 20x3 pre-tax income?

A)Understated by $400
B)Understated by $1,200
C)Overstated by $400
D)Overstated by $800

Question 14

Reported income for CXC was incorrect due to two errors.One error was the overstatement of ending inventory by $2,000.Which of the following errors, in combination with the inventory error, could cause income to be overstated by $2,500?

A)Beginning inventory was understated by $500
B)Expenses were overstated $500
C)Purchases were understated by $4,500
D)Accounts receivable was overstated by $4,500
E)A prepaid expense of $500 was capitalized

Question 15

The following errors were discovered during January 20x3 (prior to any reversing entries) The accounting period ends December 31.What effect would these errors have on 20x3 pre-tax income?

A)Understated by $1,000
B)Overstated by $1,000
C)Understated by $2,000
D)Overstated by $2,000

Question 16

A change in the salvage value of an asset depreciated on a straight-line basis and arising because additional information has been obtained is:

A)a correction of an error.
B)not an accounting change.
C)an accounting change that should be reported by restating the financial statements of all prior periods presented.
D)an accounting change that should be reported in the period of change and future periods if the change affects both.

Question 17

Reported income during the early years of the estimated life of a depreciable asset usually would be understated by the most as a result of:

A)High estimates of residual value and useful life.
B)Low estimate of residual value and high estimate of useful life.
C)Using actual residual value and actual useful life.
D)Low estimate of residual value and useful life.

Question 18

A change in an amortization rate, such as on a copyright, should be accounted for:

A)Retrospectively.
B)Currently.
C)By recording an amount in retained earnings only.
D)Prospectively.

Question 19

A change in the estimated useful life of a building:

A)must be handled as a retrospective adjustment to all accounts affected, back to the year of building acquisition.
B)creates a new account to be recognized on the income statement, and reflects the depreciation difference up to the beginning of the year of change.
C)is not allowed under ASPE or IFRS.
D)affects depreciation on the building beginning with the year of the change.

Question 20

Which of the following events would require disclosure in the current financial statements?

A)Change in recording the income for long-term construction contracts
B)Change in the estimated amortization period for an intangible asset.
C)Change in the method used to calculate bad debt expense.
D)Change from Weighted Average to FIFO for merchandise inventory.
E)All of these choices are correct.

Question 21

Depreciation expense for the most recent fiscal year on equipment purchased a few years ago is $10,000.The balance sheet at the end of the same year disclosed the following: The asset is not expected to have a salvage value and the firm depreciates the asset on the straight-line basis.In March of the next year (the year of change), the firm decided to reduce the original total useful life 20% and that a salvage value of $30,000 is a reasonabl estimate.What is depreciation in the year of the change?

A)$12,500
B)$12,000
C)$10,000
D)$13,000
E)$11,500

Question 22

At the end of Year 1, ABC Inc.'s inventories were overstated by $10,000.At the end of Year 2 its inventories were overstated by $20,000.Assuming that ABC Inc.is subject to a 20% tax rate, the effect of these overstatements on the company's Year 2 Cost of Goods Sold would be an:

A)Understatement of $10,000.
B)Overstatement of $10,000.
C)Overstatement of $20,000.
D)Understatement of $20,000.

Question 23

A change from the sum-of-the-years'-digits depreciation method to the straight-line depreciation method should be accounted for as a(n):

A)Change in accounting estimate.
B)Change in accounting policy.
C)Prospective change.
D)Accounting error.

Question 24

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

A)Failure to recognize accruals and deferrals.
B)Misstatement of an accounting value, such as inventory, deferred charge or credit, liabilities, or owners' equity.
C)Incorrect classification of expenditure as between expense and an asset.
D)Incorrect or unrealistic allocations of accounting values.
E)Recognition of a gain on disposal of fully depreciated property.

Question 25

Which of the following is not an example of a change in accounting estimate?

A)Change in the residual value of natural resources subject to depletion
B)Change in the expected recovery of a deferred charge
C)Change in the expected warranty costs on goods sold under a warranty
D)Change in the estimated loss rate on receivables
E)Change in the composition of inventory cost

Question 26

BVC began operations January 1, 20x1.Financial statements for the year ended December 31, 20x1, and 20x2, contained the following errors: In addition, on December 26, 20x2, fully depreciated machinery was sold for $21,600 cash, but the sale was not recorded until 20x3. There were no other errors during 20x1 or 20x2, and no corrections have been made for any of the errors.
What is the total pre-tax effect of the errors on 20x2 net income?

A)$71,600 Overstated
B)$50,000 Overstated
C)$53,600 Overstated
D)$28,400 Overstated

Question 27

MMC changed depreciation methods from straight-line to sum-of-the-years'-digits on two of its machines.Data on the machines are as follows: If MMC makes the change at the beginning of Year 2 of the life on each machine, what is the total amount of the catch-up adjustment for this change?

A)$56,000 debit to Accumulated depreciation
B)The effects of this change are accounted for prospectively; therefore, a catch-up adjustment is not recorded.
C)$34,400 debit to Accumulated depreciation
D)$34,400 credit to Accumulated depreciation
E)$34,400 credit to Retained earnings

Question 28

On December 25, 20x2, JKL ordered merchandise for resale from QRS that cost $7,000 (terms cash within 10 days).QRS shipped the merchandise f.o.b.shipping point on December 28, 20x2, and the goods arrived on January 2, 20x3.The invoice was received on December 30, 20x2.JKL did not record the purchase in 20x2 and did not include the goods in the 20x2 ending inventory.The effects on JKL's 20x2 financial statements were:

A)No errors because the goods were not on hand.
B)Income and owners' equity were correct; assets and liabilities were incorrect.
C)Income, assets, liabilities and owners' equity were incorrect.
D)Income and owners' equity were correct.Liabilities were incorrect.Assets were correct.
E)Income, assets, liabilities, and owners' equity were correct.

Question 29

An asset that cost $66,000 was being depreciated on a SYD basis over 5 years with an estimated residual value of $6,000.After the end of the third year, it was decided to change to straight-line depreciation.What change would be made to the balance of accumulated depreciation?

A)$12,000 credit
B)$12,000 debit
C)$13,200 debit
D)$13,200 credit

Question 30

XYZ decided to change its depreciation policy by (1)discontinuing to record depreciation on land, and (2)changing the estimated useful life on all autos used in the business from five years to four years.Choose the correct statement concerning these two changes:

A)Both are error corrections.
B)Both are changes in estimate.
C)One is an error correction, and one is a change in principle.
D)Both are changes in accounting principle.
E)One is an error correction, and one is a change in estimate.

Question 31

When a firm changes only the estimated residual value of equipment:

A)No adjustment is needed.
B)The remaining book value, reduced by the new residual value, is the basis for subsequent depreciation.
C)Depreciation must be recomputed for each previous year based on the new residual value.
D)The original cost, reduced by the new residual value, is the basis for subsequent depreciation.

Question 32

An asset that originally cost $6,000 is being depreciated on the straight-line basis over an estimated useful life of 5 years.The estimated residual value was $1,500.Near the end of year 3, it was decided that better estimates would have been a total life of 6 years and a residual value of $800.Depreciation expense for year 3 would be:

A)$900
B)$825
C)$750
D)$850

Question 33

The following accounting errors occurred in 20x3, but were not discovered until 20x4: Purchases for 20x3 overstated by = $400 Ending 20x3 inventory overstated by = $400
Depreciation expense for 20x3 overstated by = $400
The combined effect of these three errors caused 20x3 pre-tax income to be:

A)Overstated by $800.
B)Understated by $1,200.
C)Understated by $400.
D)Overstated by $400.

Question 34

The primary principle addressed by recent changes to ASPE and IFRS on accounting changes and error corrections is the:

A)Comparability principle.
B)Matching principle.
C)Full-disclosure principle.
D)Going-concern principle.

Question 35

The following errors were discovered during January 20x3 (prior to any reversing entries)The accounting period ends December 31. What effect did these errors have on the 20x2 pre-tax income?

A)Understated by $1,000
B)Understated by $2,000
C)Overstated by $1,000
D)Overstated by $2,000

Question 36

When an accounting change is to be recorded and reported under the Retrospective approach, the:

A)Pro forma financial statements for future years must be disclosed.
B)Effect of the change is spread over the past, current, and future accounting periods.
C)Cumulative effect of the change is reported as a special item in the income statement in the year of the change.
D)Retained earnings is adjusted for the cumulative effect of the change.

Question 37

In 20x2, a firm changed from the completed contract (CC)method of accounting for revenue on long-term contracts to the percentage of completion (PC)method.The firm's 20x1 and 20x2 comparative financial statements will reflect which method or methods.

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Question 38

On January 1, Year 1, XYZ Inc.paid three years' worth of rent in the amount of $36,000.The entire amount was expensed in Year 1.Assuming that the Year 2 books are still open, which of the following best describes the required adjustment to the company's December 31st, Year 2 books? Assume a tax rate of 20%.

A)Please see the following table:

B)Please see the following table:

C)Please see the following table:

D)Please see the following table:

Question 39

At the end of the accounting year, December 31, 20x4, adjusting entries were not made for wages that had been earned but not yet paid, $1,800, and rent revenue of $1,400 that had been earned but not yet collected.As a consequence, the 20x4 amount of pre-tax earnings was:

A)Understated by $3,200.
B)Overstated by $3,200.
C)Understated by $400.
D)Overstated by $400.

Question 40

Under which of the following changes would no "catch-up" entry be required, because the remaining accounting value is allocated over the present and future periods?

A)Change to new tax laws.
B)Change in accounting estimate.
C)Correction of an error.
D)Change in accounting principle.

Question 41

ABC Inc.'s Year 1 ending inventory was overstated by $20,000.Its Year 2 ending inventory was understated by $30,000.Assuming that the books for Year 2 are still open, which of the following adjustments would be required? Assume a tax rate of 25%.

A)Please see the following table:

B)Please see the following table:


C)Please see the following table:

D)Please see the following table:

Question 42

On January 1, Year 1, XYZ Inc.paid three years' worth of rent in the amount of $36,000.The entire amount was expensed in Year 1.Assuming that the Year 2 books are now closed, which of the following best describes the required adjustment to the company's December 31st, Year 2 books? Assume a tax rate of 20%.

A)Please see the following table:

B)Please see the following table:

C)Please see the following table:

D)Please see the following table:

Question 43

Super-Mineral began operations last year (year 1)on a mineral tract and expected a yield of 2,000,000 tons of a valuable ore used in the semiconductor industry.The total balance in the Depletion Base account (or "Natural Resources" account)was $2,000,000 before any depletion was recognized.During year 1, 400,000 tons of the ore were removed.Then, early in year 2, a new vein of ore was discovered holding an estimated additional 1,600,000 tons of ore.800,000 tons were removed in year 2.What is depletion in year 2?

A)$600,000
B)$800,000
C)$400,000
D)$1,600,000

Question 44

Which of the following statements is correct?

A)An error affecting prior year's depreciation is treated as a change in estimate.
B)A change in estimated useful life for a building should cause a correction to prior years' retained earnings.
C)A change in method of accounting for depreciation should cause an adjustment to current year's depreciation expense and a cumulative effect for the effect of the change on prior year's earnings.
D)A cumulative effect will never be accompanied by a related tax effect

Question 45

A company has been using straight-line depreciation over the last several years, which has amounted to a total of $20,000 depreciation before tax for those past years.This year, it decided to change to units of production, which would have caused $30,000 of depreciation to be recognized in those past years, before tax.The tax rate has always been 40%.This year's depreciation under both methods is: Straight-Line = $5,000
Units of Production = $6,000
The cumulative effect account resulting from this change will decrease net income by:

A)$10,000.
B)$6,000.
C)$6,600.
D)$4,000.

Question 46

A change in the unit depletion rate would be accounted for as a:

A)Change in accounting entity.
B)Change in accounting estimate.
C)Change in accounting principle.
D)Correction of an accounting error.

Question 47

Which of the following is a counterbalancing error?

A)Bond premium under-amortized.
B)Prepaid expense adjusted incorrectly.
C)Overstated depreciation expenses.
D)Understated by depletion expense.

Question 48

Which of the following combinations of errors would cause a $2,000 overstatement of pre-tax income?

A)$4,000 Overstated ending by inventory and $2,000 Understated by depreciation expense
B)$4,000 Overstated by beginning inventory and $2,000 Understated by ending inventory
C)$4,000 Understated by depreciation expense and $2,000 Understated by beginning inventory
D)$4,000 Understated by beginning inventory and $2,000 Understated by ending inventory

Question 49

On January 1, 20x1, MBC purchased a pattern-making machine for $400,000 cash.The machine had an estimated useful life of 25 years and a residual value of $10,000.At the beginning of 20x6, the machine was given a major overhaul, which cost $28,000.The overhaul cost was properly debited to the asset account.The overhaul did not change the estimated residual value but did change the total estimated life to 30 years.The accounting period ends December 31.MBC should recognize 20x6 depreciation of:

A)$16,000.
B)$17,000.
C)$13,600.
D)$14,000.

Question 50

A change from an accelerated depreciation method to the straight-line depreciation method should be accounted for as a:

A)Change in accounting principle or estimate, depending on the degree of practicality.
B)Correction of accounting error.
C)Change in accounting principle.
D)Change in accounting entity.
E)Change in accounting estimate.

Question 51

The 20x4 net income of MXC Inc.was understated by $3,000.This was due to three separate errors.One error was the overstatement of purchases by $2,000; the second error was the understatement of depreciation expense by $1,000.Which of the following errors, in combination with the other two, would cause the $3,000 understatement of income?

A)Prepaid expenses was overstated by $2,000
B)Revenue earned but not yet collected of $2,000 was not properly recognized
C)Interest expense was understated by $2,000
D)These two errors alone caused the misstatement

Question 52

On July 1, 20x1, PRC purchased a delivery truck for $116,000 cash.Its estimated useful life was 7 years with a residual value of $4,000.Straight-line depreciation is used.On January 1, 20x4, PRC revised the estimated useful life of the truck to 6 years and projected a residual value of $7,400.The accounting period ends December 31.What amount of depreciation should PRC recognize on the truck at December 31, 20x4?

A)$20,200
B)$18,000
C)$19,600
D)$16,000

Question 53

The following errors were made in 20x3: an understatement of purchases of $500 and an understatement of ending inventory of $500.The net effect on the 20x3 ending amount of retained earnings is:

A)$500 understatement.
B)No effect, the errors offset.
C)$1,000 understatement.
D)No effect; the errors affect income, not retained earnings.
E)$1,000 overstatement.

Question 54

Choose the correct statement regarding accounting changes.

A)Income statements numbers are required to be disclosed for most accounting principle changes.
B)All changes in accounting principle require a cumulative effect to be recognized in the income statement.
C)Changing from FIFO to Weighted Average is a retrospective accounting principle change.
D)The amount of the correction for an error affecting previous earnings will be disclosed in current earnings.

Question 55

MGC Inc.reported $50,000 of net income for 20x2.The following deferrals and accruals were not recorded in the 20x1 and 20x2 adjusting entries: MGC's correct 20x2 income was:

A)$51,300
B)$49,300
C)$48,500
D)$50,500

Question 56

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

A)Change from completed contract to percentage of completion.
B)Change in depreciation from eight years to five years.
C)Change in the depreciation method from straight-line to declining balance.
D)They are all changes in accounting policy.
E)Change from Weighted Average to FIFO.

Question 57

The concept of consistency is sacrificed in the accounting for which of the following items?

A)Cumulative effect of change in accounting principle
B)Change is the estimated salvage value of an asset
C)Loss on disposal of a segment of a business
D)Discontinued operations

Question 58

The only errors BGC made were in the valuation of ending inventory amounts.As a result, in 20x3, cost of goods sold was overstated by $1,000.In 20x4, cost of goods sold was understated by $500.What ending inventory error was made at the end of 20x4?

A)Overstated by $500
B)Overstated by $1,500
C)Understated by $500
D)Overstated by $1,000

Question 59

The effects for a change in accounting principle would usually be reported on the face of the income statement for a change:

A)From the straight-line method of depreciation to the declining-balance method.
B)In the service lives of depreciable assets.
C)From presenting statements for errors which effect only one of the financial statements.
D)In the residual value of a depreciable asset.
E)None of these choices are correct.

Question 60

Which of the following is an example of a change in accounting estimate?

A)Change from the percentage-of-completion method to the completed-contract method of income recognition for long-term construction contracts
B)Change from the Weighted Average method to the FIFO inventory method
C)Change from the gross margin method to the retail method of estimating the ending inventory
D)Change from capitalizing research and development costs to expensing such costs
E)Change in the estimate of future warranty costs

Question 61

If BJC's beginning inventory in the current year is overstated, and that is the only error in the current year, then BJC's income for the current year will be:

A)Understated; Assets will be overstated.
B)Understated; Assets will be understated.
C)Understated; Assets will be correct.
D)Overstated; Assets will be overstated.

Question 62

On January 1, 2015, JTC changed to the weighted-average cost method from the first-in, first-out (FIFO)cost method for inventory cost flow purposes.JTC can justify this as a change in policy.The change will result in a $120,000 decrease in the beginning inventory at January 1, 2015.Ignoring income taxes, the cumulative effect of changing to the weighted-average method from the FIFO method must be reported by JTC in the 2015:

A)Statement of retained earnings as a $120,000 debit adjustment to the beginning balance.
B)Income statement as a $120,000 debit.
C)Income statement as a $120,000 credit.
D)Statement of retained earnings as a $120,000 credit adjustment to the beginning balance.

Question 63

GXC Inc.committed the following errors during 20x1, its first year of operations: Recorded $800 of interest expense as a debit to prepaid expense and a credit to cash.GXC recorded $2,000 of unearned revenue as a debit to revenue receivable and a credit to revenues.
No adjusting entries were made related to these transaction entries.The effect of these errors is as follows: 20x1:

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4

Question 64

The September 30, 20x1, physical inventory of JCB appropriately included $3,800 of merchandise purchased on account, which was not recorded in purchases until October 20x1.What effect will this error have on September 30, 20x1, assets, liabilities, retained earnings, and earnings for the year then ended, respectively?

A)No effect; understate; understate; overstate
B)No effect; understate; overstate; overstate
C)Understate; no effect; overstate; overstate
D)No effect; overstate; understate; understate

Question 65

If a change in an accounting estimate affects the current period and future periods, the retrospective reporting approach must be used.

Question 66

WZ acquired some machinery on January 2, 20x1.WZ used straight-line depreciation with an estimated life of 15 years with no residual value.On January 1, 20x6, WZ estimated that the remaining life of this machinery was 6 years with no residual value.How should this change be accounted for by WZ?

A)Estimating the effect of the change on each year's net earnings, but maintaining the method of depreciation as originally determined.
B)Revising future depreciation per year, computed by dividing the book value on January 1, 20x6 by six.
C)Revising future depreciation per year, computed by dividing the original cost by six.
D)None of these choices are correct.

Question 67

Which of the following would cause income to be overstated in the period of occurrence?

A)Overestimated bad debt expense
B)Understated by ending inventory
C)Understated by beginning inventory
D)Overstated purchases

Question 68

Which of the following should not be reported retrospectively?

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

Question 69

At the beginning of the current year, a capital expenditure of $24,000 for equipment with an estimated useful life of six years (and no residual value)was debited erroneously to maintenance expense.Straight-line depreciation is used.This error will cause the current year's ending retained earnings to be:

A)Understated by $24,000.
B)Overstated by $4,000.
C)Understated by $28,000.
D)Understated by $20,000.

Question 70

Which of the following changes would be accounted for using the approach of a retrospective approach without restatement?

A)Overstatement of unearned revenue of the prior period
B)Change in the estimated life of a depreciable asset
C)Change to FIFO with previous year's information unavailable
D)Change from a non-GAAP accounting method to a GAAP method of accounting for bad debts
E)Change in the method of accounting for long-term construction contracts

Question 71

The ending inventory of XZW was overstated by $6,000 in 20x4.The overstatement will cause XZW's:

A)No misstatements on the 20x5 balance sheet.
B)Cost of goods sold to be overstated by on the 20x4 income statement.
C)Income to be overstated by on the 20x5 income statement.
D)Cost of goods sold to be understated by on the 20x5 income statement.
E)Retained earnings to be understated by on the 20x4 balance sheet.

Question 72

Which of the following changes would be accounted for prospectively?

A)Error corrections
B)Changing from declining-balance depreciation to straight-line depreciation
C)Change in the expected life of a depreciable asset
D)First time presentation of assumption financial statements with the FIFO cost flow

Question 73

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

A)Correction of an error
B)Change in inventory costing methods
C)Change in accounting principle
D)Change in accounting estimate

Question 74

At the end of Year 1, ABC Inc.'s inventories were overstated by $10,000.At the end of Year 2 its inventories were overstated by $20,000.Assuming that ABC Inc.is subject to a 20% tax rate, the effect of these overstatements on the company's Year 2 ending Inventories would be an:

A)Understatement of $16,000.
B)Overstatement of $16,000.
C)Overstatement of $30,000.
D)Overstatement of $20,000.

Question 75

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

A)Requires the reporting of income statements amounts for prior periods
B)Never needs to be disclosed
C)Does not affect the financial statements of prior periods
D)Should be reported through restatement of the financial statements

Question 76

Which of the following types of errors will not self-correcting the next year?

A)Accrued revenues (but not collected)not recognized at year-end.
B)Prepaid expenses not recognized at year-end.
C)Depreciation expense overstated for the year.
D)Prepaid revenues (collected in advance)not recognized at year-end.
E)Accrued expenses not recognized at year-end.

Question 77

An accounting clerk working for DBB neglected to record the purchase of merchandise in 20x1, which was, shipped f.o.b.shipping point on December 20, 20x1, and which arrived on December 31.The goods were included in the ending 20x1 inventory.What was the effect on DBB's 20x1 cost of goods sold?

A)Cost of goods sold was understated.
B)Cost of goods sold was overstated.
C)Cost of goods sold was correct.
D)Data are not available to determine effect on cost of goods sold.

Question 78

A change in the salvage value of a depreciable asset should be accounted for as a:

A)Change in accounting entity.
B)Change in accounting principle.
C)Change in accounting estimate.
D)Correction of an accounting error.

Question 79

Which of the following changes would be disclosed as a change in accounting principle but reported by applying the new method retrospectively as restatements of prior periods?

A)Change from completed-contract accounting to percentage of completion
B)Change from the first-in, first-out method to the last-in, first-out method of inventory pricing
C)Change in the composition of elements included in inventory
D)Change from the straight-line method to an accelerated method of depreciation

Question 80

In 20x2, a firm changed from the straight-line (SL)method of depreciation to double declining balance (DDB)to conform to long-standing industry practice.The firm's 20x1 and 20x2 comparative financial statements will reflect which method or methods.

A)Choice 1
B)Choice 2
C)Choice 3
D)Choice 4