Exam 10: Depreciation, Amortization, and Impairment

A change,for depreciation purposes,of either estimated useful life or from one GAAP to another GAAP accounting method,usually is referred to as a change in accounting principle.

A voluntary change in accounting policy is only justifiable when it results information that is both more reliable and more relevant.

A change from inventory costing using FIFO to inventory costing using Weighted Average is an example of a change in accounting principle.

If a change in an accounting estimate affects the current period and future periods,the retrospective reporting approach must be used.

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:

The 20x4 net income of MXC Inc.was understated by $3,000.This was due to three separate errors.One error was the overstatement of purchases by $2,000; the second error was the understatement of depreciation expense by $1,000.Which of the following errors,in combination with the other two,would cause the $3,000 understatement of income?

The primary principle addressed by recent changes to ASPE and IFRS on accounting changes and error corrections is the:

On July 1,20x1,PRC purchased a delivery truck for $116,000 cash.Its estimated useful life was 7 years with a residual value of $4,000.Straight-line depreciation is used.On January 1,20x4,PRC revised the estimated useful life of the truck to 6 years and projected a residual value of $7,400.The accounting period ends December 31.What amount of depreciation should PRC recognize on the truck at December 31,20x4?

An understatement of accrued wages will,if not corrected,cause income for the current and following reporting period,separately,to be overstated.

Which of the following statements is correct?

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?

GXC Inc.committed the following errors during 20x1,its first year of operations: Recorded $800 of interest expense as a debit to prepaid expense and a credit to cash. GXC recorded $2,000 of unearned revenue as a debit to revenue receivable and a credit to revenues. No adjusting entries were made related to these transaction entries. The effect of these errors is as follows: 20x1:

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

MMC changed depreciation methods from straight-line to sum-of-the-years'-digits on two of its machines.Data on the machines are as follows: If MMC makes the change at the beginning of Year 2 of the life on each machine,what is the total amount of the catch-up adjustment for this change?

A change in the estimated useful life of a building:

On January 1,20x1,CR purchased a special machine for use in the business that cost $110,000.The estimated useful life was 10 years with no residual value. Three separate and independent cases,involving accounting changes with respect to the machine,are given.For each case,two dates are specified upon which you are to give any required entry (if no entry is required,so state).Disregard income taxes. CASE A: At the end of the fifth year,it was discovered that no depreciation had ever been recorded.Assume the straight-line method is used and that the adjusting entries for 20x5 have not been made. (1)Entry at the date the omission was discovered: (2)Entry at December 31,20x5,the end of the accounting period: CASE B: At the end of the fifth year,the estimated life was changed from 10 to 15 years.Assume the straight-line method is used and that the adjusting entries for 20x5 have not been made. (1)Entry at the date the decision to change was made: (2)Entry at December 31,20x5,the end of the accounting period: CASE C: At the end of the fifth year,the company changed from the straight-line depreciation method to sum-of-the-years'-digits depreciation method.The adjusting entries for 20x5 have not been made. (1)Entry at the date of the change. (2)Entry at December 31,20x5 the end of the accounting period.

The ending inventory of XZW was overstated by $6,000 in 20x4.The overstatement will cause XZW's:

On comparative financial statements,all errors must be corrected for each year presented,rather than only for the current year.

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 asset cost $190,000; it is being depreciated,straight-line,$30,000 residual value,over 10 years.At the start of Year 7,it was decided that the residual value should be $14,000.Give the entries required on the following dates (if none explain why): January 1,Year 7: December 31,Year 7: