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Exam 20: Accounting Changes and Error Corrections

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Question 31

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How may accounting changes detract from accounting information?

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Comparability and consistency are sacrif...

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Question 32

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Nash Industries changed its method of accounting for warranties from the cash basis to the accrual basis on January 1, 2013. The company's accountant determined that a liability of $70,000 should be established. Ignore income taxes. Required: Prepare the journal entry to record the accounting change.

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Question 33

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In 2013, internal auditors discovered that Fay, Inc., had debited an expense account for the $700,000 cost of a machine purchased on January 1, 2010. The machine's useful life was expected to be five years with no residual value. Straight-line depreciation is used by Fay. The journal entry to correct the error will include a credit to accumulated depreciation of:

Which of the following is not a change in estimate?

Goosen Company bought a copyright for $90,000 on January 1, 2010, at which time the copyright had an estimated useful life of 15 years. On January 5, 2013, the company determined that the copyright would expire at the end of 2018. How much should Goosen record retrospectively as the effect of change?

Which of the following changes should be accounted for using the retrospective approach?

Describe the way we account for an error when that error is discovered in a subsequent reporting period.

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

Which of the following is not one of the approaches for reporting accounting changes?

C Co. reported a retained earnings balance of $200,000 at December 31, 2012. In September 2013, C determined that insurance premiums of $30,000 for the three-year period beginning January 1, 2012, had been paid and fully expensed in 2012. C has a 30% income tax rate. What amount should C report as adjusted beginning retained earnings in its 2013 statement of retained earnings?

Due to an error in computing depreciation expense, Crote Corporation understated accumulated depreciation by $60 million as of December 31, 2013. Crote has a tax rate of 40%. Crote's retained earnings as of December 31, 2013, would be:

In 2013, due to a change in marketing forecasts, Barney Corporation reduced the projected life of its patent for producing round dice. The cumulative patent amortization prior to 2013 would have been $10 million higher had the new life been used. Barney's tax rate is 30%. Barney's retained earnings as of December 31, 2013, would be:

Powell Company had the following errors over the last two years: 2011: Ending inventory was overstated by $30,000 while depreciation expense was overstated by $24,000. 2012: Ending inventory was understated by $5,000 while depreciation expense was understated by $4,000. By how much should retained earnings be adjusted on January 1, 2013? (Ignore taxes)

Which of the following changes should be accounted for using the retrospective approach?

A change in reporting entity requires note disclosure in all subsequent financial statements prepared for the new entity.

A broadcasting company failed to make a year-end accrual of $400,000 for fines due to a violation of FCC rules. Its tax rate is 30%. As a result of this error, net income was:

Orange Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2009 and the machine was placed in service at the beginning of 2010. The machine was being depreciated over a 10-year life using the sum-of-the-years'-digits method. The residual value is expected to be $4 million. At the beginning of 2013, Orange decided to change to the straight-line method. Ignoring income taxes, what will be Orange's depreciation expense for 2013?

An accounting change that is reported by the prospective approach is reflected in the financial statements of:

Green reports the change prospectively; previous financial statements are not revised. Instead, the undepreciated cost remaining at the time of the change would be depreciated by the sum-of-the-years'-digits method over the remaining useful life.

Retrospective restatement usually is appropriate for a change in: