Question 1

Use the following information for questions 25-26.
On January 2, 2018, Moose Corp. purchased machinery for $ 270,000. The entire cost was incorrectly recorded as an expense. The machinery has a nine-year life and a $ 18,000 residual value. Beaver uses straight-line depreciation for all its plant assets. The error was not discovered until May 1, 2020, and the appropriate corrections were made. Ignore income tax considerations.
-Before the corrections were made, retained earnings was understated by

Accepted Answer

A)   $ 270,000.
B)   $ 242,000.
C)   $ 214,000.
D)   $ 186,000. C

Question 2

Use the following information for questions.
Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors:  An insurance premium of $ 3,600 was prepaid in 2019 covering the calendar years 2019, 2020, and 2021. This had been debited to insurance expense. In addition, on December 31, 2020, fully depreciated machinery was sold for $ 1,900 cash, but the sale was not recorded until 2021. There were no other errors during 2020 or 2021 and no corrections have been made for any of the errors. Ignore income tax considerations.
-A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year end. This merchandise was also omitted from the year-end physical count. How will these errors affect assets, liabilities, and shareholders' equity at year end and net income for the year? Assets Liabilities Shareholders' Equity Net Income

Accepted Answer

A)   no effect understate overstate overstate
B)   no effect overstate understate understate
C)   understate understate no effect no effect
D)   understate no effect understate understate C

Question 3

Retrospective application is required for all

Accepted Answer

A)   errors and non-mandated policy changes.
B)   changes in estimates and non-mandated policy changes.
C)   errors and changes in estimates.
D)   changes in estimates. A

Question 4

Randall Corp. began operations on January 1, 2019, and uses FIFO to cost its inventory. Management is contemplating a change to the average cost method and is interested in determining what effect such a change will have on pre-tax income. Accordingly, the following information has been developed:  Based upon the above information, a change to the average cost method in 2020 would result in pre-tax income for 2020 of

Accepted Answer

A)   $ 790,000.
B)   $ 860,000.
C)   $ 940,000.
D)   $ 980,000.

Question 5

As part of its disclosure initiative, why is the IASB looking at the definitions of accounting policies and accounting estimates?

Accepted Answer

The answer of As part of its disclosure initiative, why...

Question 6

Economic reasons for changing accounting policies
Discuss possible economic reasons why companies may choose to change accounting policies.

Accepted Answer

The answer of Economic reasons for changing accounting policies
Discuss possible...

Question 7

A publicly accountable enterprise changes from straight-line depreciation to double declining balance. Management feels that this will result in equally reliable and more relevant information; thus it will be treated as a change in accounting policy. The entry to record this change should include a

Accepted Answer

A)   debit to Accumulated Depreciation.
B)   credit to Other Comprehensive Income.
C)   credit to Deferred Tax Asset.
D)   debit to Deferred Tax Liability.

Question 8

On January 1, 2017, Wren Corp. purchased a patent for $ 238,000. The patent is being amortized straight-line with no residual value over its remaining legal life of 15 years. At the beginning of 2020, however, Wren determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition. What amount should be reported in the 2020 of financial position for the patent, net of accumulated amortization, at December 31, 2020?

Accepted Answer

A)   $ 142,800
B)   $ 163,200
C)   $ 168,000
D)   $ 174,550

Question 9

Use the following information for questions.
Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors:  An insurance premium of $ 3,600 was prepaid in 2019 covering the calendar years 2019, 2020, and 2021. This had been debited to insurance expense. In addition, on December 31, 2020, fully depreciated machinery was sold for $ 1,900 cash, but the sale was not recorded until 2021. There were no other errors during 2020 or 2021 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 Cheyenne's retained earnings at December 31, 2020?

Accepted Answer

A)   Retained earnings understated by $ 2,000
B)   Retained earnings understated by $ 900
C)   Retained earnings understated by $ 500
D)   Retained earnings overstated by $ 700

Question 10

When an entity is first transitioning to IFRS, any adjustments required to bring GAAP measures in line with IFRS

Accepted Answer

A)   are recognized directly in other comprehensive income.
B)   are recognized directly in retained earnings.
C)   must be accounted for by prospective application.
D)   are ignored.

Question 11

Non-counterbalancing error correction
Turkey Corp. bought a machine on January 3, 2018 for $ 275,000. It had a $ 15,000 estimated residual value and a ten-year life. The corporation uses straight-line depreciation. An expense account was debited in error on the purchase date, but this was not discovered until late 2020.
Instructions
Prepare the correcting entry or entries related to the machine for 2020. Ignore income tax effects.

Accepted Answer

The answer of Non-counterbalancing error correction
Turkey Corp. bought a machine...

Question 12

On January 1, 2020, Bluebird Ltd. changed its inventory valuation method from weighted-average cost to FIFO for financial statement and income tax purposes, to make their reporting as reliable and more relevant. The change resulted in a $ 900,000 increase in the beginning inventory at January 1, 2020. Assume a 25% income tax rate. The cumulative effect of this accounting change reported for the year ended December 31, 2020 is

Accepted Answer

A)   $ 0.
B)   $ 225,000.
C)   $ 675,000.
D)   $ 900,000.

Question 13

Effects of errors on financial statements
Show how the following independent errors will affect net income on the income statement and the shareholders' equity section of the statement of financial position (SFP) using the symbol + (plus) for overstated, - (minus) for understated, and 0 (zero) for no effect.  
1. Ending 2019 inventory overstated
2. Failure to accrue 2019 interest revenue
3. A capital expenditure for factory equipment (useful life, 5 years) was charged to expense in error in 2019
4. Failure to accrue 2019 wages
5. Ending inventory in 2019 understated
6. Overstated 2019 depreciation expense; 2020 expense correct

Accepted Answer

The answer of Effects of errors on financial statements
Show how...

Question 14

Use the following information for questions.
Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors:  An insurance premium of $ 3,600 was prepaid in 2019 covering the calendar years 2019, 2020, and 2021. This had been debited to insurance expense. In addition, on December 31, 2020, fully depreciated machinery was sold for $ 1,900 cash, but the sale was not recorded until 2021. There were no other errors during 2020 or 2021 and no corrections have been made for any of the errors. Ignore income tax considerations.
-Counterbalancing errors do NOT include

Accepted Answer

A)   errors that correct themselves in two years.
B)   errors that correct themselves in three or more years.
C)   an understatement of ending inventory.
D)   an overstatement of unearned revenue.

Question 15

Change in estimate, voluntary change in accounting policy, correction of errors
Give examples and discuss the accounting procedures and disclosure required for the following:
1. Change in estimate
2. Voluntary change in accounting policy
3. Correction of an error

Accepted Answer

The answer of Change in estimate, voluntary change in accounting...

Question 16

Use the following information for questions.
Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors:  An insurance premium of $ 3,600 was prepaid in 2019 covering the calendar years 2019, 2020, and 2021. This had been debited to insurance expense. In addition, on December 31, 2020, fully depreciated machinery was sold for $ 1,900 cash, but the sale was not recorded until 2021. There were no other errors during 2020 or 2021 and no corrections have been made for any of the errors. Ignore income tax considerations.
-On December 31, 2020, the bookkeeper at Thrush Corp. did not record special insurance costs that had been incurred (but not yet paid), related to a building that Thrush Corp. is constructing. What is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2020 statement of financial position?

Accepted Answer

The answer of Use the following information for questions.
Cheyenne Ltd.'s...

Question 17

Use the following information for questions.
Fairfax Inc. began operations on January 1, 2019. Financial statements for 2019 and 2020 contained the following errors:  In addition, on December 31, 2020 fully depreciated equipment was sold for $ 7,200, but the sale was NOT recorded until 2021. No corrections have been made for any of the errors. Ignore income tax considerations.
-The total effect of the errors on Fairfax's retained earnings at December 31, 2020 is that the balance is understated by

Accepted Answer

A)   $ 82,200.
B)   $ 67,200.
C)   $ 46,200.
D)   $ 34,200.

Question 18

Which of the following alternative accounting methods is(are) allowed by ASPE and IFRS for reporting accounting changes?

Accepted Answer

A)   prospective and retrospective
B)   current and retrospective
C)   current and prospective
D)   retrospective only

Question 19

Explain the circumstances in which an accounting policy can be changed under IFRS versus ASPE.

Accepted Answer

The answer of Explain the circumstances in which an accounting...

Question 20

Retrospective application for accounting changes
Discuss how retrospective application for accounting changes would be applied.

Accepted Answer

The answer of Retrospective application for accounting changes
Discuss how retrospective...

Exam 9: Accounting Changes and Error Analysis

Retrospective application is required for all

As part of its disclosure initiative, why is the IASB looking at the definitions of accounting policies and accounting estimates?

Economic reasons for changing accounting policies Discuss possible economic reasons why companies may choose to change accounting policies.

A publicly accountable enterprise changes from straight-line depreciation to double declining balance. Management feels that this will result in equally reliable and more relevant information; thus it will be treated as a change in accounting policy. The entry to record this change should include a

When an entity is first transitioning to IFRS, any adjustments required to bring GAAP measures in line with IFRS

Change in estimate, voluntary change in accounting policy, correction of errors Give examples and discuss the accounting procedures and disclosure required for the following: 1. Change in estimate 2. Voluntary change in accounting policy 3. Correction of an error

Which of the following alternative accounting methods is(are) allowed by ASPE and IFRS for reporting accounting changes?

Explain the circumstances in which an accounting policy can be changed under IFRS versus ASPE.

Retrospective application for accounting changes Discuss how retrospective application for accounting changes would be applied.