Exam 20: Accounting Changes

Which of the following is not an example of a change in accounting principle?

Buckeye Company purchased a machine on January 1,2014.The machine had a cost of $260,000 with a $10,000 residual value.The estimated useful life of the machine was eight years.On January 1,2016,due to technological innovations,the estimated useful life was reduced by two years from the original life and the residual value was reduced by 50%.The company uses straight-line depreciation. Required: Prepare the journal entry to record the annual depreciation on December 31,2016.

Early in 2016,Benton Well Supplies discovered that a five-year insurance premium payment of $50,000 at the beginning of 2013 was debited to insurance expense.The correcting entry would include:

Indicate the nature of each of the situations described below using the following three-letter code. CODE DESCRIPTION CPR: Change in principle reported retrospectively CPP: Change in principle reported prospectively CES: Change in estimate CRE: Change in reporting entity PPA: Prior period adjustment required ____ Change from FIFO inventory costing to LIFO inventory costing. ____ Change from LIFO inventory costing to FIFO inventory costing. ____ Change in the composition of a group of firms reporting on a consolidated basis. ____ Change to the installment method of accounting for receivables. ____ Change in actuarial assumptions for a defined benefit pension plan. ____ Change from sum-of-the-years' digits depreciation to straight-line. ____ Change from expensing extraordinary repairs erroneously recorded as an expense to capitalizing the expenditures. ____ Change in the percentage used to determine warranty expense. ____ Change from reporting the equity method for investments to the cost method. ____ Change in the residual value of machinery.

FIFA Footballs acquired a patent in 2013 at a cost of $150 million and amortizes the patent on a straight-line basis.During 2016 management decided that the benefits from the patent would be received over a total period of 8 years rather than the 20-year legal life being used to amortize the cost.FIFA's 2016 financial statements should include:

After issuing its financial statements,a company discovered that its beginning inventory was overstated by $100,000.Its tax rate is 30%.As a result of this error,net income was:

A change to the LIFO method of valuing inventory usually requires use of the retrospective method.

A company failed to record unrealized gains of $20 million on its trading security investments.Its tax rate is 30%.As a result of this error,total shareholders' equity would be:

Powell Company had the following errors over the last two years: 2014: Ending inventory was overstated by $30,000 while depreciation expense was overstated by $24,000. 2015: Ending inventory was understated by $5,000 while depreciation expense was understated by $4,000. By how much should retained earnings be adjusted on January 1,2016? (Ignore taxes)

Moonland Company's income statement contained the following errors: Ending inventory,December 31,2016,understated by $6,000 Depreciation expense for 2016 overstated by $1,000 What is the effect of the errors on 2016 net income before taxes?

Accounting changes occur for which of the following reasons?

Indicate the nature of each of the situations described below using the following three-letter code. CODE DESCRIPTION CPR: Change in principle reported retrospectively CPP: Change in principle reported prospectively CES: Change in estimate CRE: Change in reporting entity PPA: Prior period adjustment required ____ Technological advance that renders worthless a patent with an unamortized cost of $45,000. ____ Change from LIFO inventory costing to average inventory costing. ____ Including in the consolidated financial statements a subsidiary acquired several years earlier that was appropriately not included in previous years. ____ Change from FIFO inventory method to LIFO. ____ Pension plan assets for a defined benefit pension plan achieving a rate of return in excess of the amount anticipated. ____ Change from the pay-as-you-go method to estimating warranty expense in the period the related product is sold. ____ Change from declining balance depreciation to straight-line. ____ Change from determining lower of cost or market for inventories by the individual item approach to the aggregate approach. ____ Settling a lawsuit for less than the amount accrued previously as a loss contingency. ____ Change in the estimated useful life of office equipment.

Prior years' financial statements are restated under the:

When the retrospective approach is used for a change to the FIFO method,which of the following accounts is usually not adjusted?

The cumulative effect of most changes in accounting principle is reported:

Which of the following would not be accounted for using the retrospective approach?

A broadcasting company failed to make a year-end accrual of $400,000 for fines due to a violation of FCC rules.Its tax rate is 30%.As a result of this error,net income was:

A company switched from the cash basis to the accrual basis for recognizing warranty expense.The unrecorded liability for warranties was $2 million at the beginning of the year.Its tax rate is 30%.The company booked a year-end warranty liability of $3 million.As a result of this change,the firm would:

On January 2,2016,Tobias Company began using straight-line depreciation for a certain class of assets.In the past,the company had used double-declining-balance depreciation for these assets.As of January 2,2016,the amount of the change in accumulated depreciation is $40,000.The appropriate tax rate is 40%.The separately reported change in 2016 earnings is:

Blue Co.has a patent on a communication process.The company has amortized the patent on a straight-line basis since 2012,when it was acquired at a cost of $36 million at the beginning of that year.Due to rapid technological advances in the industry,management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost.The decision was made at the end of 2016 (before adjusting and closing entries).What is the appropriate patent amortization expense in 2016?