136C Final - 21,22

increase in ending inventory over beginning inventory results in an adjustment to net earnings because (indirect method)

COGS sold on accrual basis is lower than on a cash basis

first step in prepping SCF requires use of which comparative fin statement

balance sheet

a company borrows 10000 and signs 90 day not payable, what is this reported as

cash inflow from financing activities

which of the following is accounted for as a change in accounting principle

change from average cost to FIFO

how is the issuance of short term note payable reported on the SCF

nontrade: financing activity Trade: adjustment to net income in operating activities

the first category of cash flows on SCF is

op act

Rose Company has recently purchased two new machines to sell, and they decided to use FIFO for an inventory method. Based on this information, what change in accounting principles should they use?

A change in accounting principles is not needed, as these are newly acquired items, so an inventory method can be adopted without reporting changes.

company reports net income from investments under the equity method and recognized income of 25,000 from its investment in another company during the current year. no dividends declared or paid by that company during the year. on our company's SCF (indirect method) the 25000 should

be reported as a deduction from net income in the cash flows from operating activities

after conversion from the equity method, dividends received by the investor company that exceeds its share of investee earnings for all periods sunsequent to the change in method should

be subtracted from the carrying value of the investment

the accountant for mission inc realized depreciation has not yet been recorded related to an asset put into production at the beginning of 2025. it is now the end of the fiscal year in 2026. ignoring income tax effects, correcting this error will require a prior period adjustment to

debit retained earnings for the adjustment

a company changes from % of completion to completed contract, which is used for tax purposes. entry for this change includes:

debit to RE in the amount of the difference on prior years, net of tax

direct method - depreciation expense is ____ when converting accrual based expenses to cash basis

deducted from

when the direct method is used, an increase in gross accounts receivable is

deducted from sales, and a change in AFDA is an adjustment to operating expenses

the estimated life of a building that has been depreciated for 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. the accountant should

depreciate the remaining book value over the remaining life of the asset

which of the following is not an example of an accounting error that would require correction

determinging a portion of goodwill recorded in a prior year acquisition has been impaired

gross accounts receivable is used by which method in determing cash flows from operating

direct

which method is more consistent with the primary purpose of the SCF

direct method

Indirect effects do/dont change prior period amounts

do not

An employee for Rotan Company is preparing the financial statements. The employeeHe made a simple calculation error but did not catch it before the statements are submitted. What is this an example of?

errors in financial statements

counterbalancing errors do not include

errors that correct themselves in three years

an example of a non-counterbalancing error would be

failure to capitalize a piece of equipment

an example of a correctino of an error in previously issued financial statements is a change

from the cash basis oc accounting to the accrual basis of accounting

deducted from net income in operating section, indirect method

gain on sale of land

in reporting unusual items on a statement of cash flows (indirect method), the

gross amount of an unusual gain should be deducted from net income

Of these options, the one accounted for as a change in accounting principle is a change

in inventory valuation from average cost to FIFO.

net accounts receivable is used by which method in determing cash flows from operating

indirect

decrease in prepaid insurance requires which adjustments in determining cash flows indirect/direct

indirect - increase direct - decrease

increase in accounts payable requires which adjusments in indirect/ direct

indirect - increase direct - decrease

which disclosure is not required for a change from lifo to fifo

indirect effect impact related to the change in accounting principle

SCF - a decrease in AR would require which adjustments in determining cash flows from operating activities

indirect- increase direct - increase

declaration of cash dividend on CS affects cash flows from operating activities as:

indirect- no effect direct - no effect

when a worksheet is used to prepare SCF debits in the reconciling columns are used for

inflows of cash and items added as adjustments to net income

decrease in accounts payable

is added to COGS under direct method

which of the following is an investing activity

major repair to machinery charged to accumulated dep

failure to accrue wages in a prior period is a counterbalancing error that would cause

net income to be overstated in the prior period

if, at thend of a period, a company using perpetual inventory erroneously excluded some goods from its ending inventory and also, erronesouly did not record the purchase of these goods in its accounting records, these errors would cause

no effect on net income, working capital, and retained earnings

If the books have already been closed for the current year, and the error that was made is already counterbalanced, then ________ is required.

no entry

how should significant noncash transactions be reported in the statement of cash flows according to FASB

noncash transactions are not to be incorporated in the statement of cash flows. they may be summarized in a separate schedule at the bottom of the statement or appear in a seperate supplementary schedule to the financials

FASB requires companies to classify all income taxes paid as

operating cash outflows

financing activities cash outflows

to stockholders as dividends, lenders to pay off long term debt, stockholders to repurchase CS

cash equivalents are

treasury bills, commercial paper, money market funds purchased w excess cash, investments with maturities of 3 months or less, readily convertible into known amounts of cash

direct method - increase in prepaid expenses is ____ when converting accrual based expenses to cash basis

added to

added to net income in operating section, indirect method

amortization of a patent

presenting consolidated financial statements this year when statements of individual companies were presented last year is

an accounting change that should be reported by restating the financial statements of all prior periods presented

a significant misclassification of accounts receivable on the balance sheet would be an example of

an accounting error requiring a prior period adjustment and restatement

a company changes from SL to accelerate method of depreciation, which will be similar to the method used for tax purposes. entry to record this change includes:

credit to accumulated depreciation

when a worksheet is used to prep a SCF, outflows of cash and items added as adjustments to net income are entered as

credits (for outflows) and debits (for items added to net income)

which of the following are proper time periods to record the effects of a change in accounting estimate

current period and prospectively

operating activities cash outflows

suppliers for inventory, employees for services, government for taxes, lenders for interest expense, others for expenses

when a company changes from the equity method to the fair value method, the cost basis for accounting purposes is

the carrying value of the amount of the investment at the date of the change

when converting to the equity method, companies should use

the prospective approach

what amount will be debited to CIP to record the change

(POC method 2022 + POC method 2023) - (CC method 22 + CC method 23)

Why does the FASB require that companies use the retrospective approach for most changes in principle? Select answer from the options below

More useful information is provided to those who use the financial statements compiled by the company.

The Patron Company has recently changed its estimates for the useful lives of all of its delivery trucks. This change took place on January 1st. What impact will this have on depreciation expenses reported in the current fiscal year? Select answer from the options below

The depreciation expense reported will be different than what was reported the previous year because the estimated useful lives have been changed.

the primary purpose of SOCF is to provide info

about the cash receipts and cash payments of an entity during a period

which of the following is correct?: - changes in accounting principles are always handled only in the current or prospective period - a change from expensing certain costs to capitalizing these costs due to a change in the period benefited should be handled as a change in accounting estimate - prior statements should be restated for changes in accounting estimates -correction of an error related to a prior period should be considered as an adjustment to the current year net income

a change from expensing certain costs to capitalizing these costs due to a change in the period benefited, should be handled as a change in accounting estimate

stone company changed its method of pricing inventories from FIFO to LIFO. what type of accounting change does this represent

a change in accounting princiiple for which the financial statements fro prior periods included for comparative purposes should be restated

which of the following is not accounted for as a change in accounting principle

a change to a different method of depreciation for plant assets

the amortization of bond premium on long term debt should be presented as

a deduction from net income (if you amortize a bond discount you add it to net income)

an increase in inventory balance is reported in SCF using indirect method as

a deduction from net income in arriving at net cash flow from op activities

net change in cash =

cash provided by op + cash prov by investing + cash prov by financing - reported net income (if reported as cash USED, then subtract)

Pam's company originally estimated the useful life of a machine to be five years. However, they have recently changed that estimate to six years. What type of change is this

change in accounting estimate

what type of accounting change should always be accounted for in current and future periods

change in accounting estimate

when a company switches from DDB to SL, change should be handled as

change in accounting estimate

Which of the following is not an accounting error?

changes in acceptable accounting principle

what describes a change in reporting entity

changing the companies included in combined financial statements

accounting changes are often made, and the monetary impact is reflected in the financial statements of a company even though this may be a violation of the concept of

consistency

which of the following is an example of an accounting error that would not require correction

correcting a 2000 payroll error from a total of 5000000

when correcting a change due to error, the restatement approach is employed by

correcting all prior period statements presented

an objective of the statement of cash flows is to

provide information about the operating, investing, and financing activities of an entity during a period

investing activities cash outflows

purchase PPE, purchase of debt or equity investments, make loans to other entitites

what disclosure is required for a change from sum of the years to Sl dep method

recomputation of current and future years' depreciation

In order to change from the sum-of-the-years-digits method to straight-line depreciation method, it is required that the company

recompute current and future years' depreciation

in the process of conversion from the equity method to the fair value method, the earnings or losses that the investor previously recognized under the equity method should

remain as a part of the carrying amount of the investment

investing activities cash inflows

sale of PPE, sale of debt or equity investments, collection of principal on loans

financing activities cash inflows

sale of common and pref stock, issuance of debt

operating activities cash inflows

sale of goods or services, interest revenue from receivables, dividends from equity investors

A company that reports changes retrospectively would do which of the following?

show any cumulative effect of the change as an adjustment to beginning retained earnings of the earliest year presented

not reported on statement of cash flows:

stock dividend, stock split, an appropriation of retained earnings

a SCF typically would not disclose effects of

stock dividends declared

which of the following is not a retrospective type accounting change

sum of the years method to straight line

SOCF answers the how much, where from, and what change questions about cash, but not

were all the cash expenditures of benefit