Final : Chp 20

Which of the following are considered a change in accounting principle? (Select all that apply.) - Change the residual value of a depreciable asset. - Change from the cost to equity method. - Report consolidated statements in place of individual statements. - Adopt a new FASB standard. - change the method of inventory

- Change from the cost to equity method. - Adopt a new FASB standard - change the method of inventory

Which of the following are changes in accounting estimates? - Adoption of a new FASB standard. - Change in useful life of a depreciable asset. - Change in estimate of periods benefited by intangible asset. - Change in inventory costing method

- Change in useful life of a depreciable asset. - Change in estimate of periods benefited by intangible asset.

When a company changes accounting methods and the effects of the change can be calculated for each period, which of the following occurs? - A cumulative effect adjustment for the change is made in the current year income statement. - A total cumulative adjustment is made to retained earnings of the most recent year. - The adjusted net income for each year is shown on the retained earnings statement for that year. - Retained earnings is adjusted for the earliest period presented.

- The adjusted net income for each year is shown on the retained earnings statement for that year. - Retained earnings is adjusted for the earliest period presented.

In year 2, Sammi Corp. changes its inventory method from FIFO to the weighted-average method. Under the weighted-average method, the year 2 beginning inventory is $3,000 higher than the FIFO method. The financial statements are revised using the retrospective approach. What are the financial statement effects of the change in accounting principle? - Year 1 retained earnings will increase. - Year 1 ending inventory will decrease. - Year 1 net income will increase.

- Year 1 retained earnings will increase. - Year 1 net income will increase.

Accounting changes include changes in accounting BLANK , in accounting BLANK, and in reporting entity.

- principle - estimate(s)

If a company discovers an error in previously issued financial statements, it must - prospectively apply the new correct method of accounting. - restate the financial statements. - correct the error in the current year

- restate the financial statements.

At the beginning of year 1, Rudolf Corp. purchased equipment for $100,000. Rudolph debited the cost to an expense account. The equipment had a 10-year life with no residual value. The company usually depreciates such assets straight-line. Ignoring tax effects, what is the effect on the year 2 balance sheet? (Select all that apply.) Assets are understated by $80,000 Assets are understated by $100,000 Retained earnings is understated by $80,000 Retained earnings is overstated by $80,000

Assets are understated by $80,000 Retained earnings is understated by $80,000

Which of the following situations would be an appropriate reason for an accounting principle change? - Management's desire to increase bonuses - Changes in related economic conditions - Management's desire to increase reported income - An expected increase in earnings per share

Changes in related economic conditions

Which of the following errors would self-correct in the following year? (Select all that apply.) - Recording the purchase of inventory as equipment. - Failure to accrue salaries in the current year. - Miscounting ending inventory. - Recording an equipment purchase in the land account.

Failure to accrue salaries in the current year. Miscounting ending inventory.

If it is impracticable to measure the period-specific effects of a change in accounting principle, what approach is used? Restatement Retrospective Modified retrospective Prospective

Prospective

A change in depreciation method is treated as a(n) change in accounting estimate. change in accounting principle. prior period adjustment. error correction.

change in accounting estimate.

For U.S. GAAP, which of the following are considered accounting changes? change in reporting period change in accounting principle change in reporting entity change in accounting estimate

change in accounting principle change in reporting entity change in accounting estimate

When a new accounting standard is applied to the adoption period and an adjustment is made to the balance of retained earnings at the beginning of the adoption period, the ______ approach is used. Restatement Retrospective Modified retrospective Prospective

modified retrospective

An addition to or reduction of the beginning balance of retained earnings is referred to as a(n) BLANK BLANK adjustment.

prior period

Which of the following are acceptable reasons for an accounting change? - To establish reserves to be used in future periods that can offset expenses. - To be consistent with others in the industry. - To manage earnings in the current period. - To apply a new method that is more appropriate.

- To be consistent with others in the industry. - To apply a new method that is more appropriate.

In year 2, Rogers Corp. changes its inventory method from FIFO to the weighted-average method. Under the weighted-average method, the year 2 beginning inventory is $5,000 lower than under the FIFO method. The financial statements are revised using the retrospective approach. What are the financial statement effects of the change in accounting principle?

- Year 1 ending inventory will decrease - Year 1 net income will decrease

In year 2, Rossman Corp. changed its inventory method from FIFO to the weighted-average method. The change resulted in a decrease in beginning inventory for year 2 of $10,000. What were the income statement effects of this change? Earnings per share for year 1 increased. Earnings per share for year 1 decreased. Net income in year 2 increased. Cost of goods sold in year 1 decreased.

Earnings per share for year 1 decreased. Reason: Beginning inventory of year 2 (closing inventory of year 1) has decreased, resulting in increase of COGS and decrease of Net income of year 1. Thus EPS decreased.

In year 1, Clark Corp. failed to record an entry to record a sale on account. In year 2, Clark recorded the entry as a debit to accounts receivable and a credit to sales revenue. The entry in year 2 to correct this entry would be debit sales revenue; credit retained earnings. debit retained earnings; credit accounts receivable. debit retained earnings; credit sales revenue. debit accounts receivable; credit retained earnings.

debit sales revenue; credit retained earnings.

Which of the following is a change in accounting estimate? - Change in subsidiaries included in consolidated financial statements. - Change in actuarial calculations pertaining to pension plan. - Change in inventory method. - Change from completed contract method to percentage-of-completion method.

Change from completed contract method to percentage-of-completion method.

When a company changes accounting methods and the effects of the change can be calculated for each period, which of the following occurs? (Select all that apply.) - A cumulative effect adjustment for the change is made in the current year income statement. - A total cumulative adjustment is made to retained earnings of the most recent year. - The adjusted net income for each year is shown on the retained earnings statement for that year. - Retained earnings is adjusted for the earliest period presented.

- The adjusted net income for each year is shown on the retained earnings statement for that year. - Retained earnings is adjusted for the earliest period presented.

Which of the following errors will self-correct? Recording a loss as an expense on the income statement. Miscounting ending inventory at the end of the year. Misclassification of an item as an operating activity on the statement of cash flows. Long-term notes receivable classified as accounts receivable.

Miscounting ending inventory at the end of the year.

If a company changes its inventory method, what financial statement accounts are affected? (Select all that apply.) accounts payable interest expense earnings per share cost of goods sold sales inventory net income

COGS earnings per share inventory net income

What method is used to account for a change in accounting estimate? Retrospective application Prospective application Prior period adjustment Correction of an error

Prospective

What is the approach used for an error correction? - Retrospective application of the new method without restatement of previous financial statements - Prospective application of the correct method - Restatement of previous years' financial statement

- Restatement of previous years' financial statement

Modified retrospective application for a change in accounting principle requires that the new standard is applied to the adoption period and - no adjustment is made to retained earnings. - an adjustment is made to retained earnings at the beginning of the adoption period. - an adjustment is made to retained earnings for the earliest period presented.

an adjustment is made to retained earnings at the beginning of the adoption period.

Haven Corp. purchases equipment and incorrectly debits maintenance expense. Which of the following amounts will be incorrect at year-end? (Select all that apply.) depreciation expense total liabilities total fixed assets retained earnings

depreciation expense total fixed assets retained earnings

Jill accrues salaries and records the transaction by debiting salary expense and crediting notes payable. The entry to correct this error is

debit notes payable; credit salaries payable.