intermedia accounting Ch 20

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

Adopt a new FASB standard. Change from the cost to equity method.

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 Retained earnings is overstated by $80,000 Assets are understated by $100,000 Retained earnings is understated by $80,000

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

An addition to or reduction of the beginning balance of retained earnings is referred to as a(n) ____ ______ adjustment. (Enter one word per blank.)

Blank 1: prior Blank 2: period

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

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

Which of the following errors will self-correct?

Miscounting ending inventory at the end of the year.

Glimmer Corp. miscounts and overstates its ending inventory in year 1 by $10,000. Ignoring tax effects, what are the financial statement effects of this error in year 1? (Select all that apply.) Understate retained earnings $10,000. Overstate net income $10,000. Understate assets $10,000. Understate net income $10,000. Overstate assets $10,000.

Overstate net income $10,000. Overstate assets $10,000.

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 income statement?

Overstated by $10,000

Which of the following are requirements for the correction of an accounting error? (Select all that apply.) Prepare a journal entry to correct the error. Treat the error on a prospective basis in the current year and future years. Report a prior period adjustment to the beginning balance in retained earnings for the earliest year affected.

Prepare a journal entry to correct the error. Report a prior period adjustment to the beginning balance in retained earnings for the earliest year affected.

An accountant discovers an error in the current year accounting records. What are the appropriate actions the accountant should take? (Select all that apply.) Ignore the mistake if it is material. Prepare the correct journal entry for the transaction. Allow the error to self-correct in the following year. Reverse the incorrect entry.

Prepare the correct journal entry for the transaction. Reverse the incorrect entry.

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

Prospective

Which of the following are requirements for the correction of an accounting error? (Select all that apply.) Correct the financial statements in the current year only. Restate previous years' financial statements that are incorrect. Disclose the nature of the error and the impact of the error on net income. Prepare a journal entry to correct the error.

Restate previous years' financial statements that are incorrect. Disclose the nature of the error and the impact of the error on net income. Prepare a journal entry to correct the error.

What is the approach used for an error correction?

Restatement of previous years' financial statements

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.) Retained earnings is adjusted for the earliest period presented. A cumulative effect adjustment for the change is made in the current year income statement. The adjusted net income for each year is shown on the retained earnings statement for that year. A total cumulative adjustment is made to retained earnings of the most recent 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.

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

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

Mirage Corp. miscounts and understates its ending inventory in year 1 by $5,000. Ignoring tax effects, what are the financial statement effects of this error in year 1? (Select all that apply.) Understate net income. Overstate assets. Understate assets. Understate retained earnings. Overstate net income.

Understate net income. Understate assets. Understate retained earnings.

A prior period adjustment is

an addition or reduction in the beginning balance of retained earnings due to an error correction.

Modified retrospective application for a change in accounting principle requires that the new standard is applied to the adoption period and

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

A change in depreciation method is treated as a(n)

change in accounting estimate.

For U.S. GAAP, which of the following are considered accounting changes? (Select all that apply.) change in reporting entity change in accounting principle change in reporting period change in accounting estimate

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

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

cost of goods sold inventory

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 accounts receivable; credit retained earnings. debit retained earnings; credit accounts receivable. debit retained earnings; credit sales revenue. debit sales revenue; credit retained earnings.

debit sales revenue; credit retained earnings.

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 fixed assets retained earnings total liabilities

depreciation expense total fixed assets retained earnings

When a company changes accounting methods, if the effects of the change can be calculated, the cumulative effect of the change is reflected

in the beginning balance of retained earnings for the earliest year presented for the years prior to that date.

If Allegan miscounts ending inventory in the current year, which of the following amounts will be incorrect on its financial statements? (Select all that apply.) total noncurrent assets inventory cost of goods sold net income total liabilities

inventory cost of goods sold net income

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.

modified retrospective

Crane Corp. changes its inventory method from FIFO to the weighted-average method. Which items will be affected on the income statement? (Select all that apply.) net income accounts payable earnings per share cost of goods sold sales

net income earnings per share cost of goods sold

Accounting changes include changes in

principles, estimates, or entities.

After a recent acquisition, Joann Inc. issues consolidated financial statements for the first time. Joann should report the acquisition as a change in _____.

reporting entity

If a company discovers an error in previously issued financial statements, it must

restate the financial statements.

If an accountant discovers an error in the current year accounting records before the financial statements are prepared, the accountant should

reverse the incorrect entry and prepare a correct entry.

The term "prior period adjustment" is used for

the correction of an error.

A change in accounting estimate is accounted for using the _____ approach.

Blank 1: prospective

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

Change in actuarial calculations pertaining to pension plan.

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

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

Which of the following is a change in accounting principle?

Change the method of inventory.

Which of the following situations would be an appropriate reason for an accounting principle change?

Changes in related economic conditions

Which of the following are considered a change in reporting entity? (Select all that apply.) Changing the size of the company by purchasing additional assets. Changing specific companies that are included in the consolidated statements. Presenting consolidated financial statements in place of individual statements. Changing the name of the company.

Changing specific companies that are included in the consolidated statements. Presenting consolidated financial statements in place of individual statements.

Rex Corp. purchased supplies on account and recorded it in the inventory account. What is the journal entry to correct this error?

Debit supplies; credit inventory.

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 decreased.

What approach is used to account for a change in depreciation method?

Prospective approach

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? (Select all that apply.)

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

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.

Which of the following is a change in accounting estimate?

Change in actuarial calculations pertaining to pension plan.

In year 1, Fox Corp. failed to record an entry to record a sale on account. In year 2, Fox 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 include which of the following? (Select all that apply.) Debit retained earnings. Credit sales revenue. Debit sales revenue. Credit retained earnings.

Debit sales revenue. Credit retained earnings.

When it is impracticable to measure the period-specific effects of a change in accounting principle, the ______ approach should be used.

Blank 1: prospective

Lawry Corp. purchased equipment for $100,000 and incorrectly recorded the equipment as inventory. The equipment has a useful life of 10 years with no residual value. The entry to correct this error would include which of the following entries? Debit inventory $100,000. Debit accumulated depreciation $100,000. Debit equipment $100,000. Credit inventory $100,000.

Debit equipment $100,000. Credit inventory $100,000.

In year 1, Regal Corp. purchased equipment for $100,000. Regal appropriately debited the equipment account in year 1. The equipment had a 10-year life with no residual value. In year 3, Regal discovered that it did not record depreciation expense in year 1 and year 2. Ignoring tax effects, what is the adjustment that should be made to retained earnings in year 3 assuming straight line depreciation?

Debit retained earnings $20,000.

What method is used to account for a change in accounting estimate?

Prospective application

When a company changes its inventory method from LIFO to FIFO, what accounts are affected in the comparative financial statements? Cost of goods sold Income tax payable Retained earnings Accounts payable Inventory Revenue

Cost of goods sold Income tax payable Retained earnings Inventory

In year 1, Fris Corp. purchased equipment for $100,000. Fris incorrectly recorded the equipment purchase as repair expense in year 1. The equipment had a 5-year life with no residual value. In year 3, Fris discovered the error. Ignoring tax effects, what is the adjustment that should be made to retained earnings in year 3?

Credit retained earnings $60,000.

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? (Select all that apply.) Year 1 ending inventory does not change. Year 1 retained earnings will increase. Year 1 net income will decrease. Year 1 ending inventory will decrease.

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

In year 1, Claire miscounted ending inventory and understated ending inventory by $10,000. The error was discovered in year 2. Ignoring tax effects, the entry to record this error would include which of the following? (Select all that apply.) Credit inventory $10,000. Debit inventory $10,000. Debit cost of goods sold $10,000. Credit retained earnings $10,000.

Debit inventory $10,000. Credit retained earnings $10,000.