Multiple Choice
Identify the choice that best completes the
statement or answers the question.
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1.
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Which of the following changes should be accounted for using the prospective
approach?
a. | A change in the depreciation method for a plant assets. | b. | A change from FIFO
method of costing inventories. | c. | A change from the LIFO method of costing
inventories. | d. | A change from the completed-contract method of accounting for long-term construction
contracts. |
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2.
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Which of the following is a change in reporting entity?
a. | A change to the full cost method in the extractive industries. | b. | Switching to the
completed contract method for construction contracts.. | c. | A change from the cost to the equity method. of
accounting for investments in comon stock. | d. | Consolidating a subsidiary not previously
included in consolidated financial statements. |
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3.
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An accounting change that is reported by the prospective approach is reflected
in the financial statements of:
a. | Prior years only. | b. | Current and future years. | c. | The current year
only. | d. | Prior years plus the current year. |
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4.
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An item that should be reported as a prior period adjustment is the:
a. | Correction of an error in depreciation from last year. | b. | Payment of taxes due
to a tax audit of last year's tax return. | c. | Collection of a previously written off bad
debt. | d. | Receipt of the proceeds of a note receivable that was due last
year. |
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5.
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In 2004, due to a change in marketing forecasts, Shaw Corporation reduced the
projected life of its patent for producing round dice. The cumulative patent amortization prior to
2004 would have been $6 million higher had the new life been used. Shaw's tax rate is 30%.
Shaw's retained earnings as of December 31, 2003, would be:
a. | Unaffected. | b. | Overstated by $1.8 million. | c. | Overstated by $4.2
million. | d. | Overstated by $6 million. |
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FLAX CO
On January 1, 20X5, Flax Co. purchased a machine for $528,000 and
depreciated it by the straight-line method using an estimated useful life of 12 years with no salvage
value. On January 1, 20X8, Flax determined that the machine had a six year useful life
reamaining and will have a salvage value of $48,000. An accounting change was made in 20X8 to
reflect these additional data.
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6.
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Flax’s retained earninngs at the beginning of 20X8 should be adjusted by
what amount to reflect this change?
a. | $58,000 | b. | $53,333 | c. | $28,000 | d. | $ 0 |
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7.
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The accumulated depreciation for this machine should have a balance at December
31, 20X8 of
a. | $190,000 | b. | $206,000 | c. | $292,000 | d. | $396,000 |
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8.
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What should be Flax’s depreciation expense for this machine for
20X9?
a. | $ 44,000 | b. | $ 58,000 | c. | $
53,333 | d. | $ 48,000 |
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9.
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Terry, Inc., is a calandar-year corporation whose
financial statements for 20X3 and 20X4 included errors as follows:
Ending Depreciation
Year
Inventory
expense
20X3 $12,500
overstated $15,000
overstated
20X4 4,000
understated 5,000 understated
Assume that purchases were recorded correctly and that no correcting
entries were made at December 31, 20X3, or at December 31, 20X4. Ignoring income taxes, by how
much should Terry's retained earnings be retroactively adjusted at January 1,
20X5?
a. | $13,500 increase. | b. | $ 9,000 decrease. | c. | $ 1,500
decrease. | d. | $ 14,000
increase. |
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10.
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A change in the periods benefitted by a deferred
cost because additional information has been obtained is
a. | A correction of an error. | b. | An accounting change that should be reported by restating the financial
statements of all prior periods presented. | c. | An accounting
change that should be reported in the period of change and future periods if the change affects
both. | d. | Not an accounting
change. |
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