Accounting Ch. 22

Front 1

Which of the following is not one of the three types of accounting changes?

Back 1

ERRORS IN FINANCIAL STATEMENTS

Front 2

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

Back 2

A CHANGE IN INVENTORY VALUATION FROM AVERAGE COST TO FIFO

Front 3

On December 31, 2012, Goldewait, Inc. appropriately changed its inventory valuation methof to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $1,950,000 increase in the beginning inventory at January 1, 2012. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is

Back 3

$1,365,000

$1,950,000 X (100% - 30%)

Front 4

A change to LIFO inventory valuation from any other acceptable inventory valuation method

Back 4

REQUIRES NO RESTATEMENT OF PRIOR YEARS' NET INCOME

Front 5

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

Back 5

CHANGE IN ACCOUNTING ESTIMATE

Front 6

Presenting consolidated financial statements this year when statements of individual companies were presented last year is

Back 6

AN ACCOUNTING CHANGE THAT SHOULD BE REPORTED BY RESTATING THE FINANCIAL STATEMENTS OF ALL PRIOR PERIODS PRESENTED

Front 7

Mazzeo Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/12 and 12/31/13 contained the following errors:

2012
2013
Ending inventory
$23,000 overstatement
$31,000 understatement
Depreciation expense
19,000 understatement
11,000 overstatement

Assume that the 2012 errors were not corrected and that no errors occurred in 2011. By what amount will 2012 income before income taxes be overstated or understated?

Back 7

$42,000 OVERSTATEMENT

$23,000 + $19,000

Front 8

Which of the following is not a reason why companies prefer certain accounting methods?

Back 8

ASSET STRUCTURE

Front 9

Which of the following is not a counterbalancing error?

Back 9

FAILURE TO RECORD DEPRECIATION

Front 10

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

Back 10

CONSISTENCY

Front 11

What approach does the FASB require when accounting for changes in accounting principle?

Back 11

RETROSPECTIVE

Front 12

On January 1, 2012, Key Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $2,320,000 increase in the January 1, 2012 inventory. Assume that the income tax rate for all years is 27.5%. The cumulative effect of the accounting change should be reported by Key in its 2011

Back 12

RETAINED EARNINGS STATEMENT AS A $1,682,000 ADDITION TO THE BEGINNING BALANCE

$2,320,000 x (100% - 27.5%)

Front 13

If retrospective application of a change in accounting principle requires assumptions about management's intent in a prior period, then what approach should be used to account for the change?

Back 13

PROSPECTIVE

Front 14

When a company changes from an accelerated method to the straight-line method of depreciation, this change should be handled as a

Back 14

CHANGE IN ACCOUNTING ESTIMATE

Front 15

Which of the following describes a change in reporting entity?

Back 15

CHANGING THE COMPANIES INCLUDED IN COMBINED FINANCIAL STATEMENTS

Front 16

On July 1, 2011, Kelly Corp. acquired equipment at a cost of $720,000. It is to be depreciated on the straight-line method over a four-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Kelly's 2011 financial statements. The oversight was discovered during the preparation of Kelly's 2012 financial statements. Which of the following accounts will not be affected by correcting the error that occurred in 2011, assuming comparative financial statements are not prepared?

Back 16

DEPRECIATION EXPENSE

Front 17

Which of the following is a reason why companies prefer certain accounting methods?

Back 17

BONUS PAYMENTS

Front 18

All of the following involve counterbalancing errors except the

Back 18

FAILURE TO ADJUST FOR BAD DEBTS

Front 19

A change that occurs as the result of new information or as additional experience is acquired is a:

Back 19

CHANGE IN ACCOUNTING ESTIMATE

Front 20

All of the following are examples of a change in accounting principle except a change from:

Back 20

FIFO TO AVERAGE COST

Front 21

A switch from the cash basis of accounting to the accrual basis is considered a:

Back 21

CORRECTION OF AN ERROR

Front 22

Change in accounting principle are generally accounted for:

Back 22

RETROSPECTIVELY

Front 23

The cumulative effect of a change in accounting principle is reported:

Back 23

ON THE RETAINED EARNINGS STATEMENT AS AN ADJUSTMENT TO THE BEGINNING BALANCE OF THE EARLIEST YEAR PRESENTED

Front 24

On December 31, 2012, Daily, Inc. appropriately changed its inventory valuation method to weighted-average cost from FIFO cost for financial statement and income tax purposes. The change will result in a $2,960,000 increase in the beginning inventory at January 1, 2012. Assume a 35% income tax rate. The cumulative effect of this account change on beginning retained earnings is

Back 24

$1,924,000

$2,960,000 X (100% - 35%)

Front 25

Corrections of errors from prior periods are reported:

Back 25

AS ADJUSTMENTS TO THE CURRENT YEAR'S BEGINNING RETAINED EARNINGS

Front 26

The cumulative effect of an accounting change is not computed for a change:

Back 26

TO THE LIFO METHOD FROM THE FIFO METHOD

Front 27

Changes in estimates must be accounted for:

Back 27

PROSPECTIVELY

Front 28

Which of the following statements related to changes in estimates is not correct?

Back 28

PRO FORMA AMOUNTS FOR PRIOR PERIODS ARE REPORTED

Front 29

A change in reporting entity is accounted for:

Back 29

RETROSPECTIVELY

Front 30

Foster Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/12 and 12/31/13 contained the following errors:
2012 2013
Ending inventory $11,500 understatement $13,000 overstatement
Depreciation expense 9,500 overstatement 10,500 understatement
Assume that the 2012 errors were not corrected and that no errors occurred in 2011. By what amount will 2012 income before income taxes be overstated or understated?

Back 30

$21,000 UNDERSTATEMENT

Front 31

Failure to record depreciation expense in a given year must be accounted for:

Back 31

AS PRIOR TO PERIOD ADJUSTMENT

Front 32

Which of the following is not a reason why companies prefer certain accounting methods?

Back 32

ASSET STRUCTURE

Front 33

All of the following involve counterbalancing errors except the:

Back 33

FAILURE TO RECORD DEPRECIATION

Front 34

Which of the following statements regarding IFRS and U.S. GAAP accounting and reporting for changes in accounting principles is incorrect?

Back 34

IFRS EXPLICITLY ADDRESSES THE ACCOUNTING AND DISCLOSURE OF INDIRECT EFFECTS RELATED TO A CHANGE IN ACCOUNTING PRINCIPLE

Front 35

TRUE/FALSE A switch from the cash basis of accounting to the accrual basis is correction of an error

Back 35

FALSE

Front 36

TRUE/FALSE A change in from an accelerated method to the straight-line method of depreciation requires an adjustment to the beginning balance of retained earnings

Back 36

FALSE

Front 37

TRUE/FALSE A change in the useful life and salvage value of a depreciable asset is handled retrospectively

Back 37

FALSE

Front 38

TRUE/FALSE Changes due to an error result in a restatement of the beginning retained earnings balance

Back 38

TRUE

Front 39

TRUE/FALSE Recording a depreciable asset as an expense is an example of a noncounterbalancing error.

Back 39

TRUE

Front 40

TRUE/FALSE Failure to record depreciation expense in a prior year would be accounted for as a prospective change

Back 40

FALSE

Front 41

TRUE/FALSE Regarding changes in accounting principles, direct effects do not change prior-period amounts

Back 41

FALSE

Front 42

TRUE/FALSE Understating ending inventory will understate the current year's net income

Back 42

FALSE

Front 43

TRUE/FALSE When changing from the equity method to the fair-value method, the investor must change the financial statements of all prior periods presented

Back 43

FALSE

Front 44

TRUE/FALSE Inventory errors are counterbalancing errors

Back 44

TRUE

Front 45

TRUE/FALSE IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) always requires retrospective application to prior years for accounting changes

Back 45

FALSE

Front 46

Which of the following is not one of the three types of accounting changes?

Back 46

CORRECTION OF AN ERROR

Front 47

A company fails to record accrued wages for the current year. Which of the following statement is true?

Back 47

RETAINED EARNINGS FOR THE CURRENT YEAR IS OVERSTATED

Front 48

A change in depreciation method used is which type of accounting change?

Back 48

PROSPECTIVE-EFFECT TYPE

Front 49

A change from LIFO inventory valuation to another inventory valuation method is an example of a:

Back 49

RETROSPECTIVE-EFFECT TYPE OF ACCOUNTING CHANGE

Front 50

A change to LIFO inventory valuation from any other acceptable inventory valuation method:

Back 50

REQUIRES NO RESTATEMENT OF PRIOR YEARS' INCOME

Front 51

At December 31, 2010, Grambling Inc. estimated bad debts as 3% of the outstanding balance of Accounts Receivable. At December 31, 2011, Grambling determined that it had underestimated bad debts in the prior period and increased its estimate to 6.5%. This change is handled on a:

Back 51

PROSPECTIVE BASIS

Front 52

Whenever it is impossible to determine whether a change in principle or a change in estimate has occurred, the change should be considered a:

Back 52

CHANGE IN ESTIMATE

Front 53

Which of the following is an example of a change in reporting entity?

Back 53

PRESENTING CONSOLIDATED STATEMENTS IN PLACE OF STATEMENTS FOR INDIVIDUAL COMPANIES, CHANGING THE COMPANIES INCLUDED IN COMBINED FINANCIAL STATEMENTS, AND CHANGING SPECIFIC SUBSIDIARIES THAT CONSTITUTE THE GROUP OF COMPANIES FOR WHICH THE ENTITY PRESENTS CONSOLIDATED FINANCIAL STATEMENTS

Front 54

In 2011, Friends Company failed to record depreciation expense on some of its assets. When the error is discovered in 2012, it will be accounted for:

Back 54

AS A PRIOR PERIOD ADJUSTMENT

Front 55

Which of the following is not a counterbalancing error?

Back 55

FAILURE TO RECORD DEPRECIATION