Question 1

Which of the following is not a change in estimate?

Accepted Answer

A)  A change in the life of a depreciable asset.
B)  A change in the mortality rate used for pension computations.
C)  A change from the cost to the equity method in accounting for investments.
D)  A change in the bad debt percentage.E) A) and B)
F) A) and C)

Question 2

Cooper Inc. took physical inventory at the end of 2008. Purchases that were acquired FOB destination were in transit, so they were not included in the physical count.

Accepted Answer

A)  Cooper needs to correct an accounting error.
B)  Cooper has made a change in accounting principle, requiring retrospective adjustment.
C)  Cooper is required to adjust a change in accounting estimate prospectively.
D)  Cooper is not required to make any accounting adjustments.This inventory should be excluded because it had not yet reached its destination, where title passes.E) A) and B)
F) B) and C)

Question 3

Most, but not all, changes in accounting principle are reported using the retrospective approach.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following accounting changes should not be accounted for prospectively?

Accepted Answer

A)  The correction of an error.
B)  A change from declining balance to straight-line depreciation.
C)  A change from straight-line to declining balance depreciation.
D)  A change in the expected salvage value of a depreciable asset.E) A) and D)
F) B) and C)

Question 5

Goosen Company bought a copyright for $90,000 on January 1, 2006, at which time the copyright had an estimated useful life of 15 years. On January 5, 2009, the company determined that the copyright would expire at the end of 2014. How much should Goosen record retrospectively as the effect of change?

Accepted Answer

A)  $ 0.
B)  $12,000.
C)  $ 8,000.
D)  $14,400.This is a change in estimate, which is reported using the prospective approach.E) A) and B)
F) None of the above

Question 6

The cumulative effect of most changes in accounting principle is reported:

Accepted Answer

A)  In the income statement between extraordinary items and net income.
B)  In the income statement after income before income tax.
C)  In the income statement between discontinued operations and extraordinary items.
D)  In the balance sheet accounts affected.E) B) and D)
F) None of the above

Question 7

How are accounting errors treated?

Accepted Answer

Accounting errors are treated retrospect...

Question 8

After issuing its financial statements, a company discovered that its beginning inventory was overstated by $100,000. Its tax rate is 30%. As a result of this error, net income was:

Accepted Answer

A)  Understated by $70,000.
B)  Overstated by $70,000.
C)  Understated by $30,000.
D)  Overstated by $30,000.If beginning inventory is overstated, COGS is overstated and net income is understated: $100,000 (1 30%)  = $70,000.E) C) and D)
F) B) and C)

Question 9

When an accounting change is reported under the retrospective approach, account balances in the general ledger:

Accepted Answer

A)  Are not adjusted.
B)  Are closed out and then updated.
C)  Are adjusted net of the tax effect.
D)  Are adjusted to what they would have been had the new method been used in previous years.E) None of the above
F) B) and D)

Question 10

Prior to 2009, Trapper John Inc. used sum-of-the-years'-digits depreciation on its store equipment. Beginning in 2009, Trapper John decided to use straight-line depreciation for these assets. The equipment cost $3 million when it was purchased at the beginning of 2007, had an estimated useful life of five years and no estimated residual value. To account for the change in 2009, Trapper John:

Accepted Answer

A)  Would retrospectively report $600,000 in depreciation expense annually for 2007 and 2008, and report $600,000 in depreciation expense for 2009.
B)  Would adjust accumulated depreciation and retained earnings for the excess charges made in 2007 and 2008,
C)  Would report depreciation expense of $400,000 in its 2009 income statement.
D)  None of these is correct.A change in depreciation methods is considered to be a change in accounting estimate that is achieved by a change in accounting principle, and handled prospectively.The computation is as follows: Book value at 1/1/09 = $3,000,000 [(5/15 $3,000,000)  + (4/15 $3,000,000) = $1,200,000.New depreciation = $1,200,000/3 = $400,000 per year for 2009-2011.E) B) and D)
F) None of the above

Question 11

Describe the way we account for a change in estimate. What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?

Accepted Answer

A change in estimate is accounted for pr...

Question 12

Diversified Systems, Inc. this year reports consolidated financial statements in place of statements of individual companies reported in previous years. This results in

Accepted Answer

A)  An accounting change that should be reported prospectively.
B)  An accounting change that should be reported by restating the financial statements of all prior periods presented.
C)  A correction of an error.
D)  Neither an accounting change nor a correction of an error.This is a change in reporting entity to be accounted for retrospectively.That is, financial statements of prior periods are restated to report the financial information for the new reporting entity in all periods.E) All of the above
F) C) and D)

Question 13

Which of the following is not an example of a change in accounting principle?

Accepted Answer

A)  A change in the useful life of a depreciable asset.
B)  A change from LIFO to FIFO for inventory costing.
C)  A change to the full costing method in the extractive industries.
D)  A change from the cost method to the equity method of accounting for investments.E) A) and D)
F) B) and D)

Question 14

Which of the following would not be accounted for using the retrospective approach?

Accepted Answer

A)  A change from LIFO to FIFO inventory costing.
B)  A change from the completed contract method to the percent-of-completion method for long-term construction contracts.
C)  A change in depreciation methods.
D)  A change from the full cost method in the oil industry.E) A) and D)
F) None of the above

Question 15

Prior years' financial statements are restated under the:

Accepted Answer

A)  Current approach.
B)  Prospective approach.
C)  Retrospective approach.
D)  None of theseE) All of the above
F) A) and D)

Question 16

Mattson Company receives royalties on a patent it developed several years ago. Royalties are 5% of net sales, receivable on September 30 for sales from January through June and receivable on March 31 for sales from July through December. The patent rights were distributed on July 1, 2008, and Mattson accrued royalty revenue of $60,000 on December 31, 2008, as follows:
Mattson received royalties of $65,000 on March 31, 2009, and $80,000 on September 30, 2009. The patent user indicated to Mattson that sales subject to royalties for the second half of 2009 should be $800,000.
Required:
(1.) Prepare any journal entries Mattson should record during 2009 related to the royalty revenue.
(2.) What changes should be made to retained earnings relative to these royalties?
 Receivable - royalty revenue$\quad$60,000
Royalty revenue$\quad$$\quad$60,000

Accepted Answer

(1.)
(2.) The fact that more w...

Question 17

All changes in estimate are accounted for retrospectively.

Accepted Answer

A) True 
 B)False

Question 18

Prior years' financial statements are restated when the prospective approach is used.

Accepted Answer

A) True 
 B)False

Question 19

A change to the LIFO method of valuing inventory usually requires use of the retrospective method.

Accepted Answer

A) True 
 B)False

Question 20

A company uses the aging method to estimate bad debt expense. Its tax rate is 30%. After issuing its 2009 financial statements, the firm discovered that it failed to write off $50,000 in receivables that were determined to be uncollectible in 2009. As a result of this error, net income was:

Accepted Answer

A)  Overstated by $35,000.
B)  Overstated by an undetermined amount.
C)  Understated by an undetermined amount.
D)  Unaffected.Receivables were overstated, so bad debt expense calculated as a percentage of receivables was also overstated.Therefore, net income was understated.The actual write-off would not have affected net income.E) A) and C)
F) A) and B)

Exam 20: Accounting Changes

After issuing its financial statements, a company discovered that its beginning inventory was overstated by $100,000. Its tax rate is 30%. As a result of this error, net income was:

Correct Answer
verified

A change to the LIFO method of valuing inventory usually requires use of the retrospective method.

Correct Answer
verified

Diversified Systems, Inc. this year reports consolidated financial statements in place of statements of individual companies reported in previous years. This results in

Correct Answer
verified

Prior years' financial statements are restated under the:

Correct Answer
verified

The cumulative effect of most changes in accounting principle is reported:

Correct Answer
verified

Correct Answer
verified

How are accounting errors treated?

Correct Answer
verified
Accounting errors are treated retrospect...
View Answer

Cooper Inc. took physical inventory at the end of 2008. Purchases that were acquired FOB destination were in transit, so they were not included in the physical count.

Correct Answer
verified

Correct Answer
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(1.)
(2.) The fact that more w...
View Answer

Which of the following accounting changes should not be accounted for prospectively?

Correct Answer
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Correct Answer
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Which of the following is not a change in estimate?

Correct Answer
verified

When an accounting change is reported under the retrospective approach, account balances in the general ledger:

Correct Answer
verified

Prior years' financial statements are restated when the prospective approach is used.

Correct Answer
verified

Most, but not all, changes in accounting principle are reported using the retrospective approach.

Correct Answer
verified

All changes in estimate are accounted for retrospectively.

Correct Answer
verified

Which of the following would not be accounted for using the retrospective approach?

Correct Answer
verified

A company uses the aging method to estimate bad debt expense. Its tax rate is 30%. After issuing its 2009 financial statements, the firm discovered that it failed to write off $50,000 in receivables that were determined to be uncollectible in 2009. As a result of this error, net income was:

Correct Answer
verified

Describe the way we account for a change in estimate. What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?

Correct Answer
verified
A change in estimate is accounted for pr...
View Answer

Which of the following is not an example of a change in accounting principle?

Correct Answer
verified

Exam 20: Accounting Changes

After issuing its financial statements, a company discovered that its beginning inventory was overstated by $100,000. Its tax rate is 30%. As a result of this error, net income was:

Correct AnswerverifiedShow Answer

A change to the LIFO method of valuing inventory usually requires use of the retrospective method.

Correct AnswerverifiedShow Answer

Diversified Systems, Inc. this year reports consolidated financial statements in place of statements of individual companies reported in previous years. This results in

Correct AnswerverifiedShow Answer

Prior years' financial statements are restated under the:

Correct AnswerverifiedShow Answer

The cumulative effect of most changes in accounting principle is reported:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

How are accounting errors treated?

Correct AnswerverifiedAccounting errors are treated retrospect...View AnswerShow Answer

Cooper Inc. took physical inventory at the end of 2008. Purchases that were acquired FOB destination were in transit, so they were not included in the physical count.

Correct AnswerverifiedShow Answer

Correct Answerverified(1.)(2.) The fact that more w...View AnswerShow Answer

Which of the following accounting changes should not be accounted for prospectively?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not a change in estimate?

Correct AnswerverifiedShow Answer

When an accounting change is reported under the retrospective approach, account balances in the general ledger:

Correct AnswerverifiedShow Answer

Prior years' financial statements are restated when the prospective approach is used.

Correct AnswerverifiedShow Answer

Most, but not all, changes in accounting principle are reported using the retrospective approach.

Correct AnswerverifiedShow Answer

All changes in estimate are accounted for retrospectively.

Correct AnswerverifiedShow Answer

Which of the following would not be accounted for using the retrospective approach?

Correct AnswerverifiedShow Answer

A company uses the aging method to estimate bad debt expense. Its tax rate is 30%. After issuing its 2009 financial statements, the firm discovered that it failed to write off $50,000 in receivables that were determined to be uncollectible in 2009. As a result of this error, net income was:

Correct AnswerverifiedShow Answer

Describe the way we account for a change in estimate. What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?

Correct AnswerverifiedA change in estimate is accounted for pr...View AnswerShow Answer

Which of the following is not an example of a change in accounting principle?

Correct AnswerverifiedShow Answer

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Accounting errors are treated retrospect...
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Correct Answer
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(1.)
(2.) The fact that more w...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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A change in estimate is accounted for pr...
View Answer

Correct Answer
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