Exam 22: Accounting for Changes and Errors

Brockmeyer, Inc. purchased some equipment on January 1, 2016, for $300,000 that had a five-year useful life and no salvage value. Brockmeyer used double-declining-balance depreciation for both financial reporting and income tax purposes. On January 1, 2018, Brockmeyer changed to the straight-line depreciation method for this equipment and can justify the change. Brockmeyer will continue to use double-declining balance depreciation for income tax reporting. Brockmeyer's income tax rate is 30%. Assuming Brockmeyer's 2018 income before depreciation and tax is $800,000, what is the amount of Brockmeyer's net income for 2018?

Which of the following statements does not properly state a basic principle for reporting an accounting change?

A change from LIFO to FIFO should be accounted for

An understatement of reported net income for the current year would result from

A change in accounting estimate does not result in a retrospective adjustment to previously issued financial statements.

An understatement of reported net income for the current year may result from

Which of the following errors will normally result in overstatement of 2017 net income?

Several errors are listed below. Required: Indicate the effect each error would have on 2016 net income by placing a plus sign +), minus sign −) or NI no impact) in the space provided. Part a) has been completed as an example.

When a change in method is inseparable from a change in estimate, the change is accounted for

Refer to Exhibit 22-2. Accordingly, the appropriate accounting change was made in 2019. How much depreciation expense for this machine should Nathan record for the year ended December 31, 2019?

A conglomerate corporation must make retrospective adjustments to account for a material change in reporting entity every year that it adds a new subsidiary or sells off a formerly owned subsidiary.

Leah Co. reported $7,000 of net income for 2016. The following errors were then discovered: · Ending 2015 accrued expense was understated by $800. · Ending 2016 unearned revenue was overstated by $75. · Ending 2015 unearned revenue was overstated by $380. Ignoring income taxes, what is the correct amount of 2016 net income?

Generally accepted methods of accounting for a change in accounting principle include

All of the following would be reported retrospectively by restating prior period's financial results except

On January 1, 2016, Roy Company acquired equipment at a cost of $500,000. Roy used the double-declining-balance method to depreciate the equipment with a ten-year life and no salvage value. On January 1, 2018, Roy changed to straight-line depreciation for this equipment, and the IRS accepted this change as being eligible as a change in accounting estimate with prospective treatment. Assuming an income tax rate of 30%, what is the amount of the restatement of January 1, 2018 retained earnings?

Every correction of an error that requires restatement of prior year financial statements requires a journal entry to increase or decrease the beginning balance of Retained Earnings.

Disadvantages of using the retrospective application method do not include which of the following?

What are the two methods for reporting changes as approved by GAAP provide a brief explanation of each?

On January 1, Year 1, the Dole Company purchased an asset that cost $154,000. The asset had an expected useful life of seven years and no estimated residual value. The company initially decided to use sum-of-the-years'-digits SYD) depreciation for both financial accounting and income tax purposes. Depreciation expense for the straight-line method and the sum-of-the-years'-digits method is as follows: Year Straight-line over7Years SYD over oYears Difference 1 \ 22,000 \ 38,500 \ 16,500 2 22,000 33,000 11,000 3 22,000 27,500 5,500 4 22,000 22,000 0 5 22,000 16,500 (5,500) 6 22,000 11,000 (11,000) 7 ) At the beginning of Year 4, Dole changed from the sum-of-the-years'-digits method to the straight-line method of depreciation for financial reporting purposes. The company's income tax rate is 30%. In Year 3 and Year 4, Dole had $90,000 pretax income before depreciation and income taxes. Required: a. Complete the following section of the income statement: b. Prepare the journal entries to record the depreciation expense, tax expense, and the effect of the accounting change if any) in Year 4.

Which of the following is a noncounterbalancing error?