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Exam 21: Accounting Changes

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Question 31

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The fact that most accounting changes are not disclosed may lead to ethical concerns among stakeholders.

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Question 32

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If a change in estimate and a change in principal occur on the same item and at the same time, the one that is dominant is reported.

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Question 33

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The records of CDF reflected the following data for 20x1: Cash paid during 20x1 for expenses, $10,000. The amount of expense that CDF should report on the 20x1 income statement is $ _.

The following errors were discovered during 20x3: Therefore, the pre-tax income for 20x2 was Overstated or Understated by $_ .

Which of the following changes would be disclosed as a change in accounting principle but reported by applying the new method retrospectively as restatements of prior periods?

AME did not account properly for the deferrals and accruals given below: (a)The correct income for 20x1 was $ _. (b)The correct income for 20x2 was $ _.

An overstatement of opening inventory will result in an understatement of Cost of Goods Sold and therefore an overstatement of the current period's earnings.

If BJC's beginning inventory in the current year is overstated, and that is the only error in the current year, then BJC's income for the current year will be:

Changing from an insupportable (bad faith)estimate to a supportable estimate is classified as a change in estimate.

The following errors were made in 20x3: an understatement of purchases of $500 and an understatement of ending inventory of $500.The net effect on the 20x3 ending amount of retained earnings is:

Under which of the following changes would no "catch-up" entry be required, because the remaining accounting value is allocated over the present and future periods?

WZ acquired some machinery on January 2, 20x1.WZ used straight-line depreciation with an estimated life of 15 years with no residual value.On January 1, 20x6, WZ estimated that the remaining life of this machinery was 6 years with no residual value.How should this change be accounted for by WZ?

Accounting changes reported by using the current approach, require that the "catch-up adjustment" include the effect on earnings in the year of the change.

An accounting clerk working for DBB neglected to record the purchase of merchandise in 20x1, which was, shipped f.o.b.shipping point on December 20, 20x1, and which arrived on December 31.The goods were included in the ending 20x1 inventory.What was the effect on DBB's 20x1 cost of goods sold?

Which of the following would cause income to be overstated in the period of occurrence?

Which of the following is not an example of an accounting error, as distinguished from a change in accounting principle or change in estimate?

An example of a special change in accounting principle that should be reported by restating the financial statements of prior periods is the change from the:

A change in accounting principle occurs when a company adopts a principle different from an approved principle previously used.

The correction of an accounting error affecting prior years' income is reported and recorded by using the retrospective approach.

At the end of Year 1, ABC Inc.'s inventories were overstated by $10,000.At the end of Year 2 its inventories were overstated by $20,000.Assuming that ABC Inc.is subject to a 20% tax rate, the effect of these overstatements on the company's Year 2 ending Retained Earnings would be an: