Exam 21: Accounting Changes

ABC Inc.'s Year 1 ending inventory was overstated by $20,000.Its Year 2 ending inventory was understated by $30,000.Assuming that the books for Year 2 are still open, which of the following adjustments would be required? Assume a tax rate of 25%.

When an accounting change is recorded and reported using the retrospective approach, the cumulative effect on Retained Earnings is recorded in that account.

When an error is discovered, it should be corrected as of the end of the year in which the error was made.

On January 1, 2014, Ryan Ltd.purchased equipment for $30,000 cash.Ryan Ltd's fiscal year end is December 31.At the time of acquisition, the equipment was expected to last 8 years and had an estimated salvage value of $1,200.Ryan Ltd.uses the straight - line method to depreciate its assets.On January 1, 2015, Ryan Ltd.changed its total estimated useful life of the vehicle from 8 years to 5 years and the estimated salvage value was changed to $2,000.Prepare the journal entry to record the depreciation on December 31, 2015.

Reported income during the early years of the estimated life of a depreciable asset usually would be understated by the most as a result of:

When an asset's residual value estimate is changed, the entire depreciation schedule for the asset is recomputed all the way back to the date of acquisition.

Which of the following is an example of a change in accounting estimate?

A change in the unit depletion rate would be accounted for as a:

Which of the following events would require disclosure in the current financial statements?

An asset that cost $66,000 was being depreciated on a SYD basis over 5 years with an estimated residual value of $6,000.After the end of the third year, it was decided to change to straight-line depreciation.What change would be made to the balance of accumulated depreciation?

The following errors were discovered during January 20x3 (prior to any reversing entries)The accounting period ends December 31. What effect did these errors have on the 20x2 pre-tax income?

Reported income for CXC was incorrect due to two errors.One error was the overstatement of ending inventory by $2,000.Which of the following errors, in combination with the inventory error, could cause income to be overstated by $2,500?

An overstatement of opening inventory will result in an understatement of operating cash flows in the current period.

A change in the useful life of an asset requires an accounting estimate change, which affects only periods after the change, is made.

The September 30, 20x1, physical inventory of JCB appropriately included $3,800 of merchandise purchased on account, which was not recorded in purchases until October 20x1.What effect will this error have on September 30, 20x1, assets, liabilities, retained earnings, and earnings for the year then ended, respectively?

An error in the inventory amount recorded involves a self-correcting error.

A change, for depreciation purposes, of either estimated useful life or estimated residual value usually is referred to as a change in accounting estimate.

MGC Inc.reported $50,000 of net income for 20x2.The following deferrals and accruals were not recorded in the 20x1 and 20x2 adjusting entries: MGC's correct 20x2 income was:

The failure to expense a prepaid asset is an example of a counterbalancing error.

With respect to the application of retrospective accounting changes, both IFRS and ASPE require that an opening balance sheet be provided for the start of the earliest period affected by the changes.