Question 1

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

Question 2

Information for a firm making an accounting change follows:   Tax rate: 30%
Common shares outstanding entire year for both years: 100;
Retained earnings,1/1/x0: $6,000
The firm changes from SYD to SL depreciation in 20x1 for financial
reporting purposes only.   Required:
(a)The 20x1 entries to record the accounting change and depreciation expense for 20x1.
(b)The comparative 20x0 and 20x1 income statements including pro forma disclosures if needed,EPS,and any disclosure footnote required.

Accepted Answer

(a)       Changed to SL from SYD,which increased 20x1 income before cont.op $70 [($400 - $300).70] ($.70/share)and 20x1 net income $490 420 + $70 ($4.90/share)

Question 3

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  False

Question 4

On January 1,Year 1,XYZ Inc.paid three years' worth of rent in the amount of $36,000.The entire amount was expensed in Year 1.Assuming that the Year 2 books are now closed,which of the following best describes the required adjustment to the company's December 31st,Year 2 books? Assume a tax rate of 20%.

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 5

An asset that costs $4,000 on January 1,20x1,is being depreciated on the basis of a 10% straight-line rate.On January 1,20x2,an ordinary repair of $600 was debited to the asset account and also was depreciated in the same way.As a result,20x2 pre-tax income was:

Accepted Answer

A)  Overstated by $600. 
B)  Understated by $600. 
C)  Overstated by $540. 
D)  Understated by $60. 
A)  Overstated by $600. 
B)  Understated by $600. 
C)  Overstated by $540. 
D)  Understated by $60.

Question 6

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

Accepted Answer

A)  Requires the reporting of income statements amounts for prior periods 
B)  Does not affect the financial statements of prior periods 
C)  Never needs to be disclosed 
D)  Should be reported through restatement of the financial statements 
A)  Requires the reporting of income statements amounts for prior periods 
B)  Does not affect the financial statements of prior periods 
C)  Never needs to be disclosed 
D)  Should be reported through restatement of the financial statements

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Super-Mineral began operations last year (year 1)on a mineral tract and expected a yield of 2,000,000 tons of a valuable ore used in the semiconductor industry.The total balance in the Depletion Base account (or "Natural Resources" account)was $2,000,000 before any depletion was recognized.During year 1,400,000 tons of the ore were removed.Then,early in year 2,a new vein of ore was discovered holding an estimated additional 1,600,000 tons of ore.800,000 tons were removed in year 2.What is depletion in year 2?

Accepted Answer

A)  $1,600,000 
B)  $800,000 
C)  $600,000 
D)  $400,000 
A)  $1,600,000 
B)  $800,000 
C)  $600,000 
D)  $400,000

Question 9

A change in accounting principle occurs when a company adopts a principle that is different from a previously used principle that is also generally accepted.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

An asset that cost $9,000 on January 1,20x1,was being depreciated using the straight-line method over five years with an estimated residual value of $1,500.At the beginning of 20x3,the company decided to use a six-year life and a residual value of $600.
(a)Give any correcting entry at January 1,20x3.
(b)Give the 20x3 adjusting entry to record depreciation.

Accepted Answer

(a)This is a change

Question 12

Choose the correct statement regarding accounting changes.

Accepted Answer

A)  All changes in accounting principle require a cumulative effect to be recognized in the income statement. 
B)  Changing from FIFO to Weighted Average is a retrospective accounting principle change. 
C)  Income statements numbers are required to be disclosed for most accounting principle changes. 
D)  The amount of the correction for an error affecting previous earnings will be disclosed in current earnings. 
A)  All changes in accounting principle require a cumulative effect to be recognized in the income statement. 
B)  Changing from FIFO to Weighted Average is a retrospective accounting principle change. 
C)  Income statements numbers are required to be disclosed for most accounting principle changes. 
D)  The amount of the correction for an error affecting previous earnings will be disclosed in current earnings.

Question 13

On December 25,20x2,JKL ordered merchandise for resale from QRS that cost $7,000 (terms cash within 10 days).QRS shipped the merchandise f.o.b.shipping point on December 28,20x2,and the goods arrived on January 2,20x3.The invoice was received on December 30,20x2.JKL did not record the purchase in 20x2 and did not include the goods in the 20x2 ending inventory.The effects on JKL's 20x2 financial statements were:

Accepted Answer

A)  Income and owners' equity were correct. Liabilities were incorrect. Assets were correct. 
B)  Income and owners' equity were correct; assets and liabilities were incorrect. 
C)  Income, assets, liabilities, and owners' equity were correct. 
D)  Income, assets, liabilities and owners' equity were incorrect. 
E)  No errors because the goods were not on hand. 
A)  Income and owners' equity were correct. Liabilities were incorrect. Assets were correct. 
B)  Income and owners' equity were correct; assets and liabilities were incorrect. 
C)  Income, assets, liabilities, and owners' equity were correct. 
D)  Income, assets, liabilities and owners' equity were incorrect. 
E)  No errors because the goods were not on hand.

Question 14

A corporation has a machine that cost $100,000,with an estimated useful life of 5 years and a residual value of $25,000.Immediately after the end of the second year,the company decided to change from SYD to straight-line depreciation.The entry to record the change would include an effect on accumulated depreciation which would be a:

Accepted Answer

A)  $15,000 debit. 
B)  $15,000 credit. 
C)  $30,000 debit. 
D)  $30,000 credit. 
A)  $15,000 debit. 
B)  $15,000 credit. 
C)  $30,000 debit. 
D)  $30,000 credit.

Question 15

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?

Accepted Answer

A)  $12,000 debit 
B)  $12,000 credit 
C)  $13,200 debit 
D)  $13,200 credit 
A)  $12,000 debit 
B)  $12,000 credit 
C)  $13,200 debit 
D)  $13,200 credit

Question 16

At the beginning of the current year,a capital expenditure of $24,000 for equipment with an estimated useful life of six years (and no residual value)was debited erroneously to maintenance expense.Straight-line depreciation is used.This error will cause the current year's ending retained earnings to be:

Accepted Answer

A)  Overstated by $4,000. 
B)  Understated by $28,000. 
C)  Understated by $24,000. 
D)  Understated by $20,000. 
A)  Overstated by $4,000. 
B)  Understated by $28,000. 
C)  Understated by $24,000. 
D)  Understated by $20,000.

Question 17

Which of the following is a counterbalancing error?

Accepted Answer

A)  Understated by depletion expense. 
B)  Bond premium under-amortized. 
C)  Prepaid expense adjusted incorrectly. 
D)  Overstated depreciation expenses. 
A)  Understated by depletion expense. 
B)  Bond premium under-amortized. 
C)  Prepaid expense adjusted incorrectly. 
D)  Overstated depreciation expenses.

Question 18

When an accounting change is to be recorded and reported under the Retrospective approach,the:

Accepted Answer

A)  Retained earnings is adjusted for the cumulative effect of the change. 
B)  Cumulative effect of the change is reported as a special item in the income statement in the year of the change. 
C)  Effect of the change is spread over the past, current, and future accounting periods. 
D)  Pro forma financial statements for future years must be disclosed. 
A)  Retained earnings is adjusted for the cumulative effect of the change. 
B)  Cumulative effect of the change is reported as a special item in the income statement in the year of the change. 
C)  Effect of the change is spread over the past, current, and future accounting periods. 
D)  Pro forma financial statements for future years must be disclosed.

Question 19

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

Accepted Answer

Overstated

Question 20

Accounting errors require the restatement of previous years' financial statements.

Accepted Answer

A) True 
 B)False

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

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.

An asset that costs $4,000 on January 1,20x1,is being depreciated on the basis of a 10% straight-line rate.On January 1,20x2,an ordinary repair of $600 was debited to the asset account and also was depreciated in the same way.As a result,20x2 pre-tax income was:

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

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

A change in accounting principle occurs when a company adopts a principle that is different from a previously used principle that is also generally accepted.

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

Choose the correct statement regarding accounting changes.

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?

Which of the following is a counterbalancing error?

When an accounting change is to be recorded and reported under the Retrospective approach,the:

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

Accounting errors require the restatement of previous years' financial statements.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Financial Instruments: Investments in Bonds and Equity Securities

Filters

Exam 10: Depreciation, Amortization, and Impairment

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

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.

An asset that costs $4,000 on January 1,20x1,is being depreciated on the basis of a 10% straight-line rate.On January 1,20x2,an ordinary repair of $600 was debited to the asset account and also was depreciated in the same way.As a result,20x2 pre-tax income was:

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

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

A change in accounting principle occurs when a company adopts a principle that is different from a previously used principle that is also generally accepted.

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

Choose the correct statement regarding accounting changes.

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?

Which of the following is a counterbalancing error?

When an accounting change is to be recorded and reported under the Retrospective approach,the:

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

Accounting errors require the restatement of previous years' financial statements.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Financial Instruments: Investments in Bonds and Equity Securities

Filters