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Exam 20: Accounting Changes and Error Corrections

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Question 41

Multiple Choice

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Newsman Co.made the following errors in counting its year-end physical inventories: As a result of the above undetected errors,2014 income was

A) understated by $18,000.
B) overstated by $198,000.
C) overstated by $18,000.
D) understated by $198,000.

E) None of the above
F) All of the above

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Question 42

Multiple Choice

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Crafter,Inc.receives subscription payments for annual (one year) subscriptions to its magazine.Payments are recorded as revenue when received.Amounts received but unearned at the end of each of the last three years are shown below: Crafter failed to record the unearned revenues in each of the three years.As a result of the omission,2014 income was

A) overstated by $146,000.
B) understated by $146,000.
C) understated by $26,000.
D) overstated by $26,000.

E) None of the above
F) B) and C)

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Question 43

Multiple Choice

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Which of the following is not correct regarding the provisions of IAS No.8 on accounting changes and error corrections?

Which of the following is a counterbalancing error?

If,at the end of a period,Michaels Company erroneously excluded some goods from its ending inventory and also erroneously did NOT record the purchase of these goods in its accounting records,these errors would cause

Which of the following is NOT a change in reporting entity?

Ideally,managers should make accounting changes only as a result of new experience or information,or due to changes in economic conditions that demand methods of accounting that more accurately reflect such changing conditions.Managers should be attempting to achieve the closest match between reporting and economic reality. Identify motivations for managers to make accounting changes other than the goal of achieving congruence between reporting and economic reality.

Strong Company's December 31 year-end financial statements contained the following errors: An insurance premium of $3,600 was prepaid in 2013 covering the years 2013,2014,and 2015.The entire amount was charged to expense in 2013.In addition,on December 31,2014,fully depreciated machinery was sold for $6,400 cash,but the sale was not recorded until 2015.There were no other errors during 2013 or 2014,and no corrections have been made for any of the errors.Ignore income tax considerations.What is the total effect of the errors on 2014 net income?

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

Asuncion Company purchased some equipment on January 2,2011,for $24,000.The company used straight-line depreciation based on a ten-year estimated life with no residual value.During 2014,management decided that this equipment could be used only three more years and then would be replaced with a technologically superior model.What entry should the company make as of January 1,2014,to reflect this change?

Chiclet Company decides at the beginning of 2014 to adopt the FIFO method of inventory valuation.The company had been using the LIFO method for financial and tax reporting since it inception on January 1,2012.The profit-sharing agreement was in place for all years prior to the year of change,2014.Payments under this agreement are not an inventoriable cost. Which of the following statements regarding the accounting for the profit-sharing agreement in connection with the change from LIFO to FIFO is correct?

On January 1,2011,Shine Services Inc.purchased a new machine for $600,000.The machine had an estimated useful life of eight years and a salvage value of $150,000.Shine elected to depreciate the machine using the double-declining-balance method.On January 1,2014,the company decided to change to straight-line depreciation. Ignoring income tax considerations,prepare the entries to record (1)Shine's 2013 depreciation expense. (2)Shine's 2014 depreciation expense.

Nevada Enterprises purchased a machine on January 2,2013,at a cost of $140,000.An additional $70,000 was spent for installation,but this amount was charged erroneously to repairs expense.The machine has a useful life of five years and a salvage value of $40,000.As a result of the error,

On January 1,2014,Vintage Corporation changed its inventory cost flow assumption from FIFO to LIFO.The change was made for financial statement and tax reporting.Vintage's inventory values at the end of each year since inception under both methods are summarized below. Ignoring income taxes,what is the amount of adjustment required in the 2014 accounts,and where would it be reported in the financial statement?

A change from an accelerated depreciation method to the straight-line depreciation method should be accounted for as a

Which of the following would NOT be accounted for as a change in accounting principle?

Which of the following is NOT a change in accounting principle?

On January 1,2014,Tillit Corporation changed its method of accounting for bad debts from the direct write-off method to the allowance method.Tillit's controller determined that an allowance of $33,000 should be established on that date. (1)Ignoring income taxes,what is the amount of adjustment required,and where would it be reported in the financial statements? (2)Prepare the journal entry (excluding income taxes)required to adjust the accounts.

Ranger Company uses a periodic inventory system.If the company's beginning inventory in the current year is overstated,and that is the only error in the current year,then the company's income for the current year will be

Albritton Inc.bought a patent for $900,000 on January 2,2010,at which time the patent had an estimated useful life of ten years.On February 2,2014,it was determined that the patent's useful life would expire at the end of 2016.How much would Albritton record as amortization expense for this patent for the year ending December 31,2014?