Question 1

Revised estimates of the useful life or residual value of a depreciable asset are examples of a change in accounting principle.

Accepted Answer

A) True 
 B)False

Question 2

A change from an accelerated depreciation method to the straight-line depreciation method should be accounted for as a:

Accepted Answer

A) Change in accounting principle or estimate, depending on the degree of practicality. 
B) Correction of accounting error. 
C) Change in accounting principle. 
D) Change in accounting entity. 
E) Change in accounting estimate. 
A) Change in accounting principle or estimate, depending on the degree of practicality. 
B) Correction of accounting error. 
C) Change in accounting principle. 
D) Change in accounting entity. 
E) Change in accounting estimate.

Question 3

Following are five separate and completely independent cases:
CASE A: A $700 item was excluded incorrectly from the ending inventory; the related purchase was not recorded.
CASE B: A $200 item was included incorrectly in the ending inventory; the related purchase was
recorded.
CASE C: A $900 item was included incorrectly in the ending inventory; the related purchase was not recorded.
CASE D: A $500 item was excluded incorrectly from ending inventory; the related purchase was recorded.
CASE E: The beginning inventory was Overstated $400.
Enter dollar amounts where appropriate in the following tabulation to indicate the effect on the financial statements of each of the items given above (disregard income tax).

Accepted Answer

Please see

Question 4

A retrospectively applied change in accounting policy relating to fixed assets where a company changes from the straight-line amortization method to the double-declining balance method would result in a decrease to opening retained earnings.

Accepted Answer

A) True 
 B)False

Question 5

A change in an estimate, which was not determined reasonable (i.e., not in good faith)to a good faith estimate, is accounted for as an accounting error.

Accepted Answer

A) True 
 B)False

Question 6

An understatement of ending inventory will result in a credit to Future Income Taxes.

Accepted Answer

A) True 
 B)False

Question 7

A change in the salvage value of an asset depreciated on a straight-line basis and arising because additional information has been obtained is:

Accepted Answer

A) a correction of an error. 
B) not an accounting change. 
C) an accounting change that should be reported by restating the financial statements of all prior periods presented. 
D) an accounting change that should be reported in the period of change and future periods if the change affects both. 
A) a correction of an error. 
B) not an accounting change. 
C) an accounting change that should be reported by restating the financial statements of all prior periods presented. 
D) an accounting change that should be reported in the period of change and future periods if the change affects both.

Question 8

Both IFRS and ASPE require note disclosures pertaining to accounting standards not yet in effect.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is correct?

Accepted Answer

A) An error affecting prior year's depreciation is treated as a change in estimate. 
B) A change in estimated useful life for a building should cause a correction to prior years' retained earnings. 
C) A change in method of accounting for depreciation should cause an adjustment to current year's depreciation expense and a cumulative effect for the effect of the change on prior year's earnings. 
D) A cumulative effect will never be accompanied by a related tax effect 
A) An error affecting prior year's depreciation is treated as a change in estimate. 
B) A change in estimated useful life for a building should cause a correction to prior years' retained earnings. 
C) A change in method of accounting for depreciation should cause an adjustment to current year's depreciation expense and a cumulative effect for the effect of the change on prior year's earnings. 
D) A cumulative effect will never be accompanied by a related tax effect

Question 10

A firm changed from completed contract to percentage of completion for revenue recognition on long-term construction contracts in 20x7.This change had the following effects on earnings: Increase in earnings   All years retained earnings balances before 20x6 100,000
By what amounts are the beginning retained earnings balances for 20x6 and 20x7 adjusted, if the 20x6 and 20x7 statements are shown comparatively.

Accepted Answer

A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4 
E) Choice 5 
A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4 
E) Choice 5

Question 11

Depreciation expense for the most recent fiscal year on equipment purchased a few years ago is $10,000.The balance sheet at the end of the same year disclosed the following:   The asset is not expected to have a salvage value and the firm depreciates the asset on the straight-line basis.In March of the next year (the year of change), the firm decided to reduce the original total useful life 20% and that a salvage value of $30,000 is a reasonabl estimate.What is depreciation in the year of the change?

Accepted Answer

A) $12,500 
B) $12,000 
C) $10,000 
D) $13,000 
E) $11,500 
A) $12,500 
B) $12,000 
C) $10,000 
D) $13,000 
E) $11,500

Question 12

A misstatement of opening inventory is an example of a counterbalancing error.

Accepted Answer

A) True 
 B)False

Question 13

If a corporation changes from reporting investments on the cost basis to reporting on the equity basis, the prospective approach of reporting must be used.

Accepted Answer

A) True 
 B)False

Question 14

An overstatement of opening inventory entails an overstatement of Cost of Goods Sold in the current period.

Accepted Answer

A) True 
 B)False

Question 15

Failure to record depreciation expense in one-year results in what is usually called a counterbalancing error.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following changes would be accounted for using the approach of a retrospective approach without restatement?

Accepted Answer

A) Overstatement of unearned revenue of the prior period 
B) Change in the estimated life of a depreciable asset 
C) Change to FIFO with previous year's information unavailable 
D) Change from a non-GAAP accounting method to a GAAP method of accounting for bad debts 
E) Change in the method of accounting for long-term construction contracts 
A) Overstatement of unearned revenue of the prior period 
B) Change in the estimated life of a depreciable asset 
C) Change to FIFO with previous year's information unavailable 
D) Change from a non-GAAP accounting method to a GAAP method of accounting for bad debts 
E) Change in the method of accounting for long-term construction contracts

Question 17

At the end of the accounting year, December 31, 20x4, adjusting entries were not made for wages that had been earned but not yet paid, $1,800, and rent revenue of $1,400 that had been earned but not yet collected.As a consequence, the 20x4 amount of pre-tax earnings was:

Accepted Answer

A) Understated by $3,200. 
B) Overstated by $3,200. 
C) Understated by $400. 
D) Overstated by $400. 
A) Understated by $3,200. 
B) Overstated by $3,200. 
C) Understated by $400. 
D) Overstated by $400.

Revised estimates of the useful life or residual value of a depreciable asset are examples of a change in accounting principle.

A change from an accelerated depreciation method to the straight-line depreciation method should be accounted for as a:

A retrospectively applied change in accounting policy relating to fixed assets where a company changes from the straight-line amortization method to the double-declining balance method would result in a decrease to opening retained earnings.

A change in an estimate, which was not determined reasonable (i.e., not in good faith)to a good faith estimate, is accounted for as an accounting error.

An understatement of ending inventory will result in a credit to Future Income Taxes.

A change in the salvage value of an asset depreciated on a straight-line basis and arising because additional information has been obtained is:

Both IFRS and ASPE require note disclosures pertaining to accounting standards not yet in effect.

Which of the following statements is correct?

A misstatement of opening inventory is an example of a counterbalancing error.

If a corporation changes from reporting investments on the cost basis to reporting on the equity basis, the prospective approach of reporting must be used.

An overstatement of opening inventory entails an overstatement of Cost of Goods Sold in the current period.

Failure to record depreciation expense in one-year results in what is usually called a counterbalancing error.

Which of the following changes would be accounted for using the approach of a retrospective approach without restatement?

At the end of the accounting year, December 31, 20x4, adjusting entries were not made for wages that had been earned but not yet paid, $1,800, and rent revenue of $1,400 that had been earned but not yet collected.As a consequence, the 20x4 amount of pre-tax earnings was:

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

Exam 21: Accounting Changes

Revised estimates of the useful life or residual value of a depreciable asset are examples of a change in accounting principle.

A change from an accelerated depreciation method to the straight-line depreciation method should be accounted for as a:

A retrospectively applied change in accounting policy relating to fixed assets where a company changes from the straight-line amortization method to the double-declining balance method would result in a decrease to opening retained earnings.

A change in an estimate, which was not determined reasonable (i.e., not in good faith)to a good faith estimate, is accounted for as an accounting error.

An understatement of ending inventory will result in a credit to Future Income Taxes.

A change in the salvage value of an asset depreciated on a straight-line basis and arising because additional information has been obtained is:

Both IFRS and ASPE require note disclosures pertaining to accounting standards not yet in effect.

Which of the following statements is correct?

A misstatement of opening inventory is an example of a counterbalancing error.

If a corporation changes from reporting investments on the cost basis to reporting on the equity basis, the prospective approach of reporting must be used.

An overstatement of opening inventory entails an overstatement of Cost of Goods Sold in the current period.

Failure to record depreciation expense in one-year results in what is usually called a counterbalancing error.

Which of the following changes would be accounted for using the approach of a retrospective approach without restatement?

At the end of the accounting year, December 31, 20x4, adjusting entries were not made for wages that had been earned but not yet paid, $1,800, and rent revenue of $1,400 that had been earned but not yet collected.As a consequence, the 20x4 amount of pre-tax earnings was:

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