Exam 20: Accounting Changes

Cherokee Company's auditor discovered some errors.No errors were corrected during 2015.The errors are described as follows: (1. )Beginning inventory on January 1,2015,was understated by $5,000. (2. )A two-year insurance policy purchased on April 30,2015,in the amount of $24,000 was debited to Prepaid Insurance.No adjustment was made on December 31,2015,or on December 31,2016. Required: Prepare appropriate journal entries (assume the 2016 books have not been closed).Ignore income taxes.

La Casita Restaurants changed from the FIFO method of inventory costing to the weighted average method during 2016.When reported in the 2016 comparative financial statements,the 2015 inventory amount will be:

Due to an error in computing depreciation expense,Crote Corporation understated accumulated depreciation by $60 million as of December 31,2016.Crote has a tax rate of 40%.Crote's retained earnings as of December 31,2016,would be:

Lindy Company's auditor discovered two errors.No errors were corrected during 2015.The errors are described as follows: (1. )Merchandise costing $4,000 was sold to a customer for $9,000 on December 31,2015,but it was recorded as a sale on January 2,2016.The merchandise was properly excluded from the 2015 ending inventory.Assume the periodic inventory system is used. (2. )A machine with a five-year life was purchased on January 1,2015.The machine cost $20,000 and has no expected salvage value.No depreciation was taken in 2015 or 2016.Assume the straight-line method for depreciation. Required: Prepare appropriate journal entries (assume the 2016 books have not been closed).Ignore income taxes.

A company failed to report the $600,000 additional liability for its underfunded pension plan.Its tax rate is 30%.As result of this error,retained earnings would be:

Which of the following changes should be accounted for using the retrospective approach?

What are the situations deemed to constitute a change in reporting entity? Describe the way changes in reporting entity are reported.

The prospective approach usually is required for:

When a change in accounting principle is reported,what is sometimes sacrificed?

Using International Financial Reporting Standards (IFRS),which of the following statements is true regarding correcting errors in previously issued financial statements?

At the end of the current year,a company overstated prepaid insurance by $80,000 and understated supplies expense by $100,000.Its effective tax rate is 40%.As a result of this error,net income is:

National Hoopla Company switches from sum-of-the-years' digits depreciation to straight-line depreciation.As a result:

B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2016.The change affects machinery purchased at the beginning of 2014 at a cost of $72,000.The machinery has an estimated life of five years and an estimated residual value of $3,600.What is B's 2016 depreciation expense?

Listed below are five terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the correct term.

Branch Industries changes from declining balance depreciation to straight-line depreciation for existing assets.Describe in detail the way Branch would account for the change and include reasons for the accounting.

Lundholm Company purchased a machine for $100,000 on January 1,2014.Lundholm depreciates machines of this type by the straight-line method over a 10-year period using no salvage value.Due to a change in sales patterns,on January 1,2016,management determines the useful life of the machine to be a total of five years.What amount should Lundholm record for depreciation expense for 2016? The tax rate is 40%.

A change in reporting entity requires note disclosure in all subsequent financial statements prepared for the new entity.

A company overstated its liability for warranties by $200,000.Its tax rate is 30%.As a result of this error,income tax expense is:

Which of the following is a change in estimate?

Name and briefly describe the three categories of accounting changes.