Question 1

During 2016,Hoffman Co.decides to use FIFO to account for its inventory transactions.Previously,it had used LIFO.

Accepted Answer

A) Hoffman is not required to make any accounting adjustments. 
B) Hoffman has made a change in accounting principle requiring retrospective adjustment. 
C) Hoffman has made a change in accounting principle requiring prospective application. 
D) Hoffman needs to correct an accounting error. 
A) Hoffman is not required to make any accounting adjustments. 
B) Hoffman has made a change in accounting principle requiring retrospective adjustment. 
C) Hoffman has made a change in accounting principle requiring prospective application. 
D) Hoffman needs to correct an accounting error.

Question 2

A company failed to record unrealized gains of $20 million on its available for sale security investments.Its tax rate is 30%.As a result of this error,comprehensive income would be:

Accepted Answer

A) Understated by $14 million. 
B) Understated by $6 million. 
C) Understated by $20 million 
D) Unaffected. 
A) Understated by $14 million. 
B) Understated by $6 million. 
C) Understated by $20 million 
D) Unaffected.

Question 3

Which of the following is accounted for prospectively?

Accepted Answer

A) Changes from the average method of inventory costing to FIFO. 
B) Change in reporting entity. 
C) Change in the percentage used to determine warranty expense. 
D) Correction of an error. 
A) Changes from the average method of inventory costing to FIFO. 
B) Change in reporting entity. 
C) Change in the percentage used to determine warranty expense. 
D) Correction of an error.

Question 4

Describe the way we account for a change in estimate.What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?

Accepted Answer

A change in estimate is accounted for pr

Question 5

During 2016,P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts:
2014 $120,000 understated
2015 150,000 overstated
P uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method.Prior to any adjustments for these errors and ignoring income taxes,P's retained earnings at January 1,2016,would be:

Accepted Answer

A) Correct. 
B) $ 30,000 overstated. 
C) $150,000 overstated. 
D) $270,000 overstated. 
A) Correct. 
B) $ 30,000 overstated. 
C) $150,000 overstated. 
D) $270,000 overstated.

Question 6

In the previous year,a firm failed to record premium amortization of $40,000 and $30,000,respectively,on its bonds payable and held to maturity bond investments.These errors affect both income before tax and taxable income.The firm's tax rate is 30%.As a result of this error,net income was:

Accepted Answer

A) Understated by $7,000. 
B) Overstated by $7,000. 
C) Understated by $33,000. 
D) Overstated by $33,000. 
A) Understated by $7,000. 
B) Overstated by $7,000. 
C) Understated by $33,000. 
D) Overstated by $33,000.

Question 7

An item that should be reported as a prior period adjustment is the:

Accepted Answer

A) Correction of an error in depreciation from last year. 
B) Payment of taxes due to a tax audit of last year's tax return. 
C) Payment of a previously recorded warranty expense. 
D) Receipt of the proceeds of a note receivable that was due last year. 
A) Correction of an error in depreciation from last year. 
B) Payment of taxes due to a tax audit of last year's tax return. 
C) Payment of a previously recorded warranty expense. 
D) Receipt of the proceeds of a note receivable that was due last year.

Question 8

Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S.GAAP than with International Financial Reporting Standards (IFRS)?

Accepted Answer

A) Change in reporting entity. 
B) Change to the LIFO method from the FIFO method. 
C) Change in accounting estimate. 
D) Change in depreciation methods. 
A) Change in reporting entity. 
B) Change to the LIFO method from the FIFO method. 
C) Change in accounting estimate. 
D) Change in depreciation methods.

Question 9

For 2015,P Co.estimated its two-year equipment warranty costs based on $23 per unit sold in 2015.Experience during 2016 indicated that the estimate should have been based on $25 per unit.The effect of this $2 difference from the estimate is reported:

Accepted Answer

A) In 2016 income from continuing operations. 
B) As an accounting change,net of tax,below 2016 income from continuing operations. 
C) As an accounting change requiring 2015 financial statements to be restated. 
D) As a correction of an error requiring 2015 financial statements to be restated. 
A) In 2016 income from continuing operations. 
B) As an accounting change,net of tax,below 2016 income from continuing operations. 
C) As an accounting change requiring 2015 financial statements to be restated. 
D) As a correction of an error requiring 2015 financial statements to be restated.

Question 10

Orange Corp.constructed a machine at a total cost of $70 million.Construction was completed at the end of 2012 and the machine was placed in service at the beginning of 2013.The machine was being depreciated over a 10-year life using the sum-of-the-years'-digits method.The residual value is expected to be $4 million.At the beginning of 2016,Orange decided to change to the straight-line method.Ignoring income taxes,what will be Orange's depreciation expense for 2016?

Accepted Answer

A) $4.8 million. 
B) $5.4 million. 
C) $6.6 million. 
D) $9.4 million. 
A) $4.8 million. 
B) $5.4 million. 
C) $6.6 million. 
D) $9.4 million.

Question 11

Which of the following is not a change in estimate?

Accepted Answer

A) A change in the useful life of a depreciable asset. 
B) A change in the mortality rate used for pension computations. 
C) A change from the cost to the equity method in accounting for investments. 
D) A change in the warranty expense percentage. 
A) A change in the useful life of a depreciable asset. 
B) A change in the mortality rate used for pension computations. 
C) A change from the cost to the equity method in accounting for investments. 
D) A change in the warranty expense percentage.

Question 12

A change in accounting estimate and a change in reporting entity are types of changes in accounting principle.

Accepted Answer

A) True 
 B)False

Question 13

Describe in detail the way companies report most voluntary changes in accounting principle.

Accepted Answer

In general,companies report voluntary ch

Question 14

Some inventory errors are described as "self-correcting" in that they have the opposite financial statement effect in the period following the errors,thereby "correcting" the original account balance errors.
Required:
Given this "self-correcting" feature,discuss why these errors should not be ignored and describe the steps needed to correct these errors.

Accepted Answer

Despite the self-correcting feature of c

Question 15

Which of the following statements is true regarding correcting errors in previously issued financial statements prepared in accordance with International Financial Reporting Standards (IFRS)?

Accepted Answer

A) The error can be reported in the current period if it's not considered practicable to report it retrospectively. 
B) The error can be reported in the current period if it's not considered practicable to report it prospectively. 
C) The error can be reported prospectively if it's not considered practicable to report it retrospectively. 
D) Retrospective application is required with no exception. 
A) The error can be reported in the current period if it's not considered practicable to report it retrospectively. 
B) The error can be reported in the current period if it's not considered practicable to report it prospectively. 
C) The error can be reported prospectively if it's not considered practicable to report it retrospectively. 
D) Retrospective application is required with no exception.

Question 16

B Co.reported a deferred tax liability of $24 million for the year ended December 31,2015,related to a temporary difference of $60 million.The tax rate was 40%.The temporary difference is expected to reverse in 2017 at which time the deferred tax liability will become payable.There are no other temporary differences in 2015-2017.Assume a new tax law is enacted in 2016 that causes the tax rate to change from 40% to 30% beginning in 2017.(The rate remains 40% for 2016 taxes. )Taxable income in 2016 is $90 million.
Required:
Determine the effect of the change and prepare the appropriate journal entry to record B's income tax expense in 2016.What adjustment,if any,is needed to revise retained earnings as a result of the change?

Accepted Answer

A deferred tax liability is established

Question 17

Describe the way we account for an error when that error is discovered in a subsequent reporting period.

Accepted Answer

When an error is discovered,previous yea

Question 18

There is not always a clear-cut distinction between a change in estimate and a change in principle or a simultaneous change in estimate and change in principle.How are such situations accounted for?

Accepted Answer

When it is not possible to det

Question 19

Which of the following changes is not usually accounted for retrospectively?

Accepted Answer

A) Change from expensing extraordinary repairs to capitalizing the expenditures. 
B) Change from FIFO to LIFO. 
C) Change in the composition of firms reporting on a consolidated basis. 
D) Change from LIFO to FIFO. 
A) Change from expensing extraordinary repairs to capitalizing the expenditures. 
B) Change from FIFO to LIFO. 
C) Change in the composition of firms reporting on a consolidated basis. 
D) Change from LIFO to FIFO.

Question 20

Prior years' financial statements are restated when the prospective approach is used.

Accepted Answer

A) True 
 B)False

During 2016,Hoffman Co.decides to use FIFO to account for its inventory transactions.Previously,it had used LIFO.

A company failed to record unrealized gains of $20 million on its available for sale security investments.Its tax rate is 30%.As a result of this error,comprehensive income would be:

Which of the following is accounted for prospectively?

Describe the way we account for a change in estimate.What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?

In the previous year,a firm failed to record premium amortization of $40,000 and $30,000,respectively,on its bonds payable and held to maturity bond investments.These errors affect both income before tax and taxable income.The firm's tax rate is 30%.As a result of this error,net income was:

An item that should be reported as a prior period adjustment is the:

Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S.GAAP than with International Financial Reporting Standards (IFRS)?

For 2015,P Co.estimated its two-year equipment warranty costs based on $23 per unit sold in 2015.Experience during 2016 indicated that the estimate should have been based on $25 per unit.The effect of this $2 difference from the estimate is reported:

Which of the following is not a change in estimate?

A change in accounting estimate and a change in reporting entity are types of changes in accounting principle.

Describe in detail the way companies report most voluntary changes in accounting principle.

Which of the following statements is true regarding correcting errors in previously issued financial statements prepared in accordance with International Financial Reporting Standards (IFRS)?

Describe the way we account for an error when that error is discovered in a subsequent reporting period.

There is not always a clear-cut distinction between a change in estimate and a change in principle or a simultaneous change in estimate and change in principle.How are such situations accounted for?

Which of the following changes is not usually accounted for retrospectively?

Prior years' financial statements are restated when the prospective approach is used.

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, comprehensive Income, and the Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, plant, and Equipment and Intangible Assets: Utilization and Impairment

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

The Statement of Cash Flows

Filters

Exam 20: Accounting Changes

During 2016,Hoffman Co.decides to use FIFO to account for its inventory transactions.Previously,it had used LIFO.

A company failed to record unrealized gains of $20 million on its available for sale security investments.Its tax rate is 30%.As a result of this error,comprehensive income would be:

Which of the following is accounted for prospectively?

Describe the way we account for a change in estimate.What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?

In the previous year,a firm failed to record premium amortization of $40,000 and $30,000,respectively,on its bonds payable and held to maturity bond investments.These errors affect both income before tax and taxable income.The firm's tax rate is 30%.As a result of this error,net income was:

An item that should be reported as a prior period adjustment is the:

Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S.GAAP than with International Financial Reporting Standards (IFRS)?

For 2015,P Co.estimated its two-year equipment warranty costs based on $23 per unit sold in 2015.Experience during 2016 indicated that the estimate should have been based on $25 per unit.The effect of this $2 difference from the estimate is reported:

Which of the following is not a change in estimate?

A change in accounting estimate and a change in reporting entity are types of changes in accounting principle.

Describe in detail the way companies report most voluntary changes in accounting principle.

Which of the following statements is true regarding correcting errors in previously issued financial statements prepared in accordance with International Financial Reporting Standards (IFRS)?

Describe the way we account for an error when that error is discovered in a subsequent reporting period.

There is not always a clear-cut distinction between a change in estimate and a change in principle or a simultaneous change in estimate and change in principle.How are such situations accounted for?

Which of the following changes is not usually accounted for retrospectively?

Prior years' financial statements are restated when the prospective approach is used.

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, comprehensive Income, and the Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, plant, and Equipment and Intangible Assets: Utilization and Impairment

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

The Statement of Cash Flows

Filters