ACC Final

Counterbalancing errors are those errors that take longer than two periods to correct themselves. True False

False

On January 1, 2017, Blossom Corp. acquired a machine at a cost of $880000. It is to be depreciated on the straight-line method over a 5-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Blossom's 2017 financial statements. The oversight was discovered during the preparation of Blossom's 2018 financial statements. Depreciation expense on this machine for 2018 should be A. $176000. B. $220000. C. $0. D. $352000.

A. $176000. $880000 ÷ 5 = $176000.

Accrued salaries payable of $100000 were not recorded at December 31, 2017. Office supplies on hand of $57000 at December 31, 2018 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause A. 2018 net income to be understated $157000 and December 31, 2018 retained earnings to be understated $57000. B. 2017 net income to be overstated $43000 and 2018 net income to be understated $57000. C. 2018 net income and December 31, 2018 retained earnings to be understated $57000 each. D. 2017 net income and December 31, 2017 retained earnings to be understated $100000 each.

A. 2018 net income to be understated $157000 and December 31, 2018 retained earnings to be understated $57000.

Which of the following is accounted for as a change in accounting principle? A. A change in inventory valuation from average cost to FIFO. B. A change from expensing immaterial expenditures to deferring and amortizing them as they become material. C. A change in the estimated useful life of plant assets. D. A change from the cash basis of accounting to the accrual basis of accounting.

A. A change in inventory valuation from average cost to FIFO.

Presenting consolidated financial statements this year when statements of individual companies were presented last year is A. an accounting change that should be reported by restating the financial statements of all prior periods presented. B. not an accounting change. C. an accounting change that should be reported prospectively. D. a correction of an error.

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

Counterbalancing errors do not include A. errors that correct themselves in three years. B. errors that correct themselves in two years. C. an understatement of purchases. D. an overstatement of unearned revenue.

A. errors that correct themselves in three years.

Wildhorse Co. purchased machinery that cost $2850000 on January 4, 2016. The entire cost was recorded as an expense. The machinery has a 9-year life and a $185000 residual value. The error was discovered on December 20, 2018. Ignore income tax considerations. Wildhorse's income statement for the year ended December 31, 2018, should show the cumulative effect of this error in the amount of A. $2257778. B. $1978333. C. $0. D. $2216667.

C. $0.

On January 1, 2016, Cullumber Co. purchased a patent for $1636250. The patent is being amortized over its remaining legal life of 15 years expiring on January 1, 2031. During 2019, Cullumber determined that the economic benefits of the patent would not last longer than 10 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2019? A. $981750 B. $1155000 C. $1122000 D. $1199917

C. $1122000 $1636250 × 3/15 = $327250 $1636250 - $327250 - [($1636250 - $327250) × 1/7] = $1122000.

Carla Vista Company purchased equipment that cost $2775000 on January 1, 2017. The entire cost was recorded as an expense. The equipment had a 9-year life and a $111000 residual value. Carla Vista uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2019. Carla Vista is subject to a 30% tax rate. Carla Vista's net income for the year ended December 31, 2017, was understated by A. $2479000. B. $2775000. C. $1735300 D. $1942500.

C. $1735300 ($2775000 - [($2775000 - $111000) ÷ 9]) × (1 - 0.3) = $1735300.

On January 1, 2016, Ivanhoe Corporation acquired machinery at a cost of $1540000. Ivanhoe adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of 10 years, with no residual value. At the beginning of 2019, a decision was made to change to the double-declining balance method of depreciation for this machine. The amount that Ivanhoe should record as depreciation expense for 2019 is A. $154000. B. $215600. C. $308000. D. $462000.

C. $308000.

On January 1, 2016, Sandhill Corporation acquired machinery at a cost of $1290000. Sandhill adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of 10 years, with no residual value. At the beginning of 2019, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2019 would be A. $184286. B. $66048. C. $94354. D. $129000.

C. $94354 {$1290000 - [($1290000 × 0.2) + ($1032000 × 0.2) + ($825600 × 0.2)]} ÷ 7 = $94354.

Equipment was purchased at the beginning of 2016 for $970000. At the time of its purchase, the equipment was estimated to have a useful life of 6 years and a salvage value of $112000. The equipment was depreciated using the straight-line method of depreciation through 2018. At the beginning of 2019, the estimate of useful life was revised to a total life of 8 years and the expected salvage value was changed to $68500. The amount to be recorded for depreciation for 2019, reflecting these changes in estimates, is A. $108200. B. $61286. C. $94500. D. $112688.

C. $94500 $970000 - {[($970000 - $112000) ÷ 6] × 3} = $541000 ($541000 - $68500) ÷ (8 - 3) = $94500.

Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line depreciation method? A. The cumulative effect on prior years, net of tax, in the current retained earnings statement B. Restatement of prior years' income statements C. Recomputation of current and future years' depreciation D. All of these are required

C. Recomputation of current and future years' depreciation

On January 1, 2018, Blossom Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $910000 increase in the January 1, 2018 inventory. Assume that the income tax rate for all years is 35%. The cumulative effect of the accounting change should be reported by Blossom in its 2018 A. income statement as a $910000 cumulative effect of accounting change. B. retained earnings statement as a $910000 addition to the beginning balance. C. retained earnings statement as a $591500 addition to the beginning balance. D. income statement as a $591500 cumulative effect of accounting change.

C. retained earnings statement as a $591500 addition to the beginning balance.

Which of the following statements is correct? A. Correction of an error related to a prior period should be considered as an adjustment to current year net income. B. Changes in accounting principle are always handled in the current or prospective period. C. Prior statements should be restated for changes in accounting estimates. D. 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.

D. 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.

Which of the following is not accounted for as a change in accounting principle? A. A change from full-cost to successful efforts in the extractive industry B. A change from the completed-contract to the percentage-of-completion method C. A change from LIFO to FIFO for inventory valuation D. A change to a different method of depreciation for plant assets

D. A change to a different method of depreciation for plant assets

Sandhill Company purchased a machine on January 1, 2016, for $970000. At the date of acquisition, the machine had an estimated useful life of 6 years with no salvage. The machine is being depreciated on a straight-line basis. On January 1, 2019, Sandhill determined, as a result of additional information, that the machine had an estimated useful life of 8 years from the date of acquisition with no salvage. An accounting change was made in 2019 to reflect this additional information. What is the amount of depreciation expense on this machine that should be charged in Sandhill's income statement for the year ended December 31, 2019? A. $121250 B. $194000 C. $242500 D. $97000

D. $97000 ($970000 ÷ 6) × 3 = $485000; $485000 ÷ 5 = $97000.

Which of the following disclosures is required for a change from LIFO to FIFO? A. The cumulative effect on prior years, net of tax, in the current retained earnings statement B. The justification for the change C. Restated prior year income statements D. All of these are required.

D. All of these are required.

Which type of accounting change should always be accounted for in current and future periods? A. Change in reporting entity B. Change in accounting principle C. Correction of an error D. Change in accounting estimate

D. Change in accounting estimate

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a A. correction of an error. B. change in accounting principle. C. prior period adjustment. D. change in accounting estimate.

D. change in accounting estimate.

A change in accounting principle is a change that occurs as the result of new information or additional experience. True False

False

Accounting errors include changes in estimates that occur because a company acquires more experience, or as it obtains additional information. True False

False

Adoption of a new principle in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change. True False

False

When a company changes an accounting principle, it should report the change by reporting the cumulative effect of the change in the current year's income statement. True False

False

When companies make changes that result in different reporting entities, the change is reported prospectively. True False

False

Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements. True False

True

If an FASB standard creates a new principle, expresses preference for, or rejects a specific accounting principle, the change is considered clearly acceptable. True False

True

One of the disclosure requirements for a change in accounting principle is to show the cumulative effect of the change on retained earnings as of the beginning of the earliest period presented. True False

True

Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so. True False

True

Retrospective application refers to the application of a different accounting principle to recast previously issued financial statements—as if the new principle had always been used. True False

True

When it is impossible to determine whether a change in principle or change in estimate has occurred, the change is considered a change in estimate. True False

True