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Exam 20: Accounting Changes and Error Corrections

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Question 21

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The ending inventory for Wyeth Company was overstated by $6,000 in 2014.The overstatement will cause Wyeth Company's

A) retained earnings to be understated on the 2014 balance sheet.
B) 2015 balance sheet not to be misstated
C) cost of goods sold to be overstated on the 2014 income statement.
D) cost of goods sold to be understated on the 2015 income statement.

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Question 22

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When a firm changed its method of accounting for inventory from LIFO to FIFO in 2014,it decided that the 2014 financial statements should be shown comparatively with the 2013 results. Which of the following statements concerning reporting the change in the retained earnings statement is correct?

A) Both the January 1,2013,and January 1,2014,retained earnings balances are reported at different amounts to reflect the effects of the change in earnings before those respective dates.
B) Only the January 1,2013,retained earnings balance is reported at a different amount to reflect the effects of the change in earnings.
C) Only the January 1,2014,retained earnings balance is reported at a different amount to reflect the effects of the change in earnings.
D) No direct change to retained earnings is needed since earnings for both years have been adjusted to reflect the change.

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Question 23

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Which of the following is NOT a change in reporting entity?

In 2014,a company changed from the LIFO method of accounting for inventory to FIFO.The company's 2013 and 2014 comparative financial statements will reflect which method or methods? 2013 2014

Which of the following should NOT be reported retroactively?

Which of the following is not correct regarding the provisions of IAS No.8 on accounting changes and error corrections?

The cumulative effect on prior years' earnings of a change in accounting principle should be reported separately as an adjustment to retained earnings for the earliest period presented for all of the following changes except

Ending inventory for 2012 is overstated by $5,500 due to a faulty count and costing.The tax rate is 39%.Assume the same accounting methods for both financial reporting and taxes.The error is discovered late in 2014.The 2014 annual report shows the financial statements for 2012,2013,2014 on a comparative basis. Which of the following is correct regarding the reporting of this error in the 2014 annual report?

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

On January 1,2011,Caravanos Company purchased for $320,000 a machine with a useful life of ten years and no salvage value.The machine was depreciated by the double-declining-balance method,and the carrying amount of the machine was $204,800 on December 31,2012.Caravanos changed to the straight-line method on January 1,2013.Caravanos can justify the change.What should be the depreciation expense on this machine for the year ended December 31,2014?

Which of the following,if discovered by Somber Company in the accounting period subsequent to the period of occurrence,requires the company to report the correction of an error?

Queener Corporation uses a periodic inventory system and neglected to record a purchase of merchandise on account at year-end.This merchandise was omitted from the year-end physical count.How will these errors affect Queener's assets,liabilities,and stockholders' equity at year-end and net earnings for the year? Stockholders' Assets Liabilities Equity Net Earnings

Albritton Inc.bought a patent for $900,000 on January 2,2010,at which time the patent had an estimated useful life of ten years.On February 2,2014,it was determined that the patent's useful life would expire at the end of 2016.How much would Albritton record as amortization expense for this patent for the year ending December 31,2014?

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

For a company with a periodic inventory system,which of the following would cause income to be overstated in the period of occurrence?

The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported

On January 2,2012,Lynch Company acquired machinery at a cost of $800,000.This machinery was being depreciated by the double-declining-balance method over an estimated useful life of eight years,with no residual value.At the beginning of 2014,Lynch decided to change to the straight-line method of depreciation.Ignoring income tax considerations,the cumulative effect of this accounting change is

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

Newsman Co.made the following errors in counting its year-end physical inventories: As a result of the above undetected errors,2014 income was

Asuncion Company purchased some equipment on January 2,2011,for $24,000.The company used straight-line depreciation based on a ten-year estimated life with no residual value.During 2014,management decided that this equipment could be used only three more years and then would be replaced with a technologically superior model.What entry should the company make as of January 1,2014,to reflect this change?