Question 1

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:

Accepted Answer

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. 
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 2

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:

Accepted Answer

A) Understated; Assets will be overstated. 
B) Understated; Assets will be understated. 
C) Understated; Assets will be correct. 
D) Overstated; Assets will be overstated. 
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 3

Accounting changes reported by using the current approach, require that the "catch-up adjustment" include the effect on earnings in the year of the change.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

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. 
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 5

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?

Accepted Answer

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. 
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 6

The following errors were discovered during 20x3:   Therefore, the pre-tax income for 20x2 was Overstated or Understated by $_ .

Accepted Answer

Overstated

Question 7

A change in accounting principle occurs when a company adopts a principle different from an approved principle previously used.

Accepted Answer

A) True 
 B)False

Question 8

If a change in estimate and a change in principal occur on the same item and at the same time, the one that is dominant is reported.

Accepted Answer

A) True 
 B)False

Question 9

AME did not account properly for the deferrals and accruals given below:   (a)The correct income for 20x1 was $ _.
(b)The correct income for 20x2 was $ _.

Accepted Answer

(a)$5,000 + $250 - $200 - $275

Question 10

The records of CDF reflected the following data for 20x1: Cash paid during 20x1 for expenses, $10,000.   The amount of expense that CDF should report on the 20x1 income statement is $ _.

Accepted Answer

$10,000 +

Question 11

The correction of an accounting error affecting prior years' income is reported and recorded by using the retrospective approach.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

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

Question 13

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

Accepted Answer

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

Question 14

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?

Accepted Answer

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. 
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 15

The fact that most accounting changes are not disclosed may lead to ethical concerns among stakeholders.

Accepted Answer

A) True 
 B)False

Question 16

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:

Accepted Answer

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. 
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 17

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?

Accepted Answer

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 
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 18

An overstatement of opening inventory will result in an understatement of Cost of Goods Sold and therefore an overstatement of the current period's earnings.

Accepted Answer

A) True 
 B)False

Question 19

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:

Accepted Answer

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

Question 20

Changing from an insupportable (bad faith)estimate to a supportable estimate is classified as a change in estimate.

Accepted Answer

A) True 
 B)False

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:

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:

Accounting changes reported by using the current approach, require that the "catch-up adjustment" include the effect on earnings in the year of the change.

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

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?

The following errors were discovered during 20x3: Therefore, the pre-tax income for 20x2 was Overstated or Understated by $_ .

A change in accounting principle occurs when a company adopts a principle different from an approved principle previously used.

If a change in estimate and a change in principal occur on the same item and at the same time, the one that is dominant is reported.

AME did not account properly for the deferrals and accruals given below: (a)The correct income for 20x1 was $ _. (b)The correct income for 20x2 was $ _.

The records of CDF reflected the following data for 20x1: Cash paid during 20x1 for expenses, $10,000. The amount of expense that CDF should report on the 20x1 income statement is $ _.

The correction of an accounting error affecting prior years' income is reported and recorded by using the retrospective approach.

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?

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

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?

The fact that most accounting changes are not disclosed may lead to ethical concerns among stakeholders.

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:

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?

An overstatement of opening inventory will result in an understatement of Cost of Goods Sold and therefore an overstatement of the current period's earnings.

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:

Changing from an insupportable (bad faith)estimate to a supportable estimate is classified as a change in estimate.

Financial Liabilities and Provisions

Financial Instruments: Long-Term Debt

Shareholders Equity

Financial Instruments: Complex Debt and Equity

Corporate Income Tax

Tax Losses

Leases

Post-Employment Benefits

Earnings Per Share

Financial Statement Analysis

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Exam 21: Accounting Changes

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:

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:

Accounting changes reported by using the current approach, require that the "catch-up adjustment" include the effect on earnings in the year of the change.

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

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?

The following errors were discovered during 20x3: Therefore, the pre-tax income for 20x2 was Overstated or Understated by $_ .

A change in accounting principle occurs when a company adopts a principle different from an approved principle previously used.

If a change in estimate and a change in principal occur on the same item and at the same time, the one that is dominant is reported.

AME did not account properly for the deferrals and accruals given below: (a)The correct income for 20x1 was $ _. (b)The correct income for 20x2 was $ _.

The records of CDF reflected the following data for 20x1: Cash paid during 20x1 for expenses, $10,000. The amount of expense that CDF should report on the 20x1 income statement is $ _.

The correction of an accounting error affecting prior years' income is reported and recorded by using the retrospective approach.

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?

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

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?

The fact that most accounting changes are not disclosed may lead to ethical concerns among stakeholders.

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:

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?

An overstatement of opening inventory will result in an understatement of Cost of Goods Sold and therefore an overstatement of the current period's earnings.

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:

Changing from an insupportable (bad faith)estimate to a supportable estimate is classified as a change in estimate.

Financial Liabilities and Provisions

Financial Instruments: Long-Term Debt

Shareholders Equity

Financial Instruments: Complex Debt and Equity

Corporate Income Tax

Tax Losses

Leases

Post-Employment Benefits

Earnings Per Share

Financial Statement Analysis

Filters