Exam 10: Depreciation, Amortization, and Impairment

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.

The only errors BGC made were in the valuation of ending inventory amounts.As a result,in 20x3,cost of goods sold was overstated by $1,000.In 20x4,cost of goods sold was understated by $500.What ending inventory error was made at the end of 20x4?

The following accounting errors occurred in 20x3,but were not discovered until 20x4: The combined effect of these three errors caused 20x3 pre-tax income to be:

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

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

Which of the following should not be reported retrospectively?

All changes in accounting estimates should be accounted for only in the period of the change; there is no effect on future periods.

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

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.

If the estimated useful life of an asset was originally 10 years and then later changed to 12 years,the effects of this change should be:

BVC began operations January 1,20x1.Financial statements for the year ended December 31,20x1,and 20x2,contained the following errors: In addition,on December 26,20x2,fully depreciated machinery was sold for $21,600 cash,but the sale was not recorded until 20x3. There were no other errors during 20x1 or 20x2,and no corrections have been made for any of the errors. What is the total pre-tax effect of the errors on 20x2 net income?

Change in accounting estimate requires that a "catch-up adjustment" be recorded and reported in the year of the change.

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.

The records for OTC Inc.showed the following for 20x2: Cash paid during the year on expenses,$4,000. The amount of expense that should be reported on the income statement is: $__________________________.

Most changes in accounting principle are recognized by using the current approach.

In 20x4,a firm discovered that $10,000 of equipment purchased on 1/1/x1 was expensed in full.The equipment has a ten-year life,has no residual value,and should have been depreciated on the straight-line basis.The error is corrected.As a result,the comparative 20x3 and 20x4 financial statements will show what amounts as adjustments to the beginning balances of retained earnings dated:

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

A change in an accounting estimate should be reported on the financial statements on a retrospective basis.

If it is impracticable to determine the cumulative effect at the beginning of the current period or,if it is allowed by the creation of a new accounting standard,an accounting change may be applied prospectively.

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 reasonable estimate.The firm also decided that the double declining balance method is a more appropriate depreciation method for this asset. Required: (a)The entry to record the accounting change. (b)The entry to record depreciation expense in the year of change.