FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 20: Accounting Changes

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

Mobic Inc. acquired some manufacturing equipment in January 2006 for $400,000 and depreciated it $40,000 each year for three years on a straight-line basis. During 2009, the manufacturer announced a new technology for this type of equipment that will make the old models obsolete by the end of 2012. As a result, Mobic will plan to replace the equipment at that time, effectively reducing the asset's life from ten to seven years. In its financial statements for 2009, Mobic should:

A) Charge $280,000 in depreciation expense.
B) Report the book value of the equipment on its12/31/09 balance sheet at $210,000.
C) Make an adjustment to retained earnings for the error in measuring depreciation during 2006-2008.
D) None of these is correct.The computation is as follows: Book value at 1/1/09 = $400,000 (3 $40,000) = $280,000
Prospective change in depreciation estimate for four remaining years is $280,000/4 = $70,000 per year.

E) B) and D)
F) All of the above

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

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:

A) Unaffected.
B) Overstated by $400,000.
C) Overstated by $280,000.
D) Overstated by $120,000.$400,000 (1 0%) = $400,000 Fines paid for violations of the law are not tax deductible.

E) B) and D)
F) B) and C)

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

An item that should be reported as a prior period adjustment is the:

If inventory is understated at the end of 2008 and the error is not discovered, how will net income be affected in 2009?

If a change is made from straight-line to SYD depreciation, one should record the effects by a journal entry including:

Most changes in accounting principle require a disclosure justifying the change in the first set of financial statements after the change is made.

Macintosh Inc. changed from LIFO to the FIFO inventory costing method on January 1, 2009. Inventory values at the end of each year since the inception of the company are as follows: Required: Ignoring income tax considerations, prepare the entry to report this accounting change. $\begin{array} { c c c } & \text { FIFO } & \text { LIFO } \\2007 & \$ 200,000 & \$ 180,000 \\2008 & 400,000 & 360,000\end{array}$

During 2009, P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts: P uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, P's retained earnings at January 1, 2009 would be

A company changes depreciation methods. Briefly describe the steps the company should take to report this accounting change in its current comparative financial statements.

Due to an error in computing depreciation expense, Crote Corporation understated accumulated depreciation by $60 million as of December 31, 2009. Crote has a tax rate of 40%. Crote's retained earnings as of December 31, 2009, would be:

Lindy Company's auditor discovered two errors. No errors were corrected during 2008. The errors are described as follows: (1.) Merchandise costing $4,000 was sold to a customer for $9,000 on December 31, 2008, but it was recorded as a sale on January 2, 2009. The merchandise was properly excluded from the 2008 ending inventory. Assume the periodic inventory system is used. (2.) A machine with a 5-year life was purchased on January 1, 2008. The machine cost $20,000 and has no expected salvage value. No depreciation was taken in 2008 or 2009. Assume the straight-line method for depreciation. Required: Prepare appropriate journal entries (assume the 2009 books have not been closed). Ignore income taxes.

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

Which of the following is a change in reporting entity?

L Company discovered that a three-year insurance premium payment of $240,000 one year ago was debited to insurance expense. Required: 1. What action is required? Ignore taxes. 2. What action is required if the error is not discovered until 4 years after it occurred?

Cherokee Company's auditor discovered some errors. No errors were corrected during 2008. The errors are described as follows: (1.) Beginning inventory on January 1, 2008, was understated by $5,000. (2.) A two-year insurance policy purchased on April 30, 2008, in the amount of $24,000 was debited to Prepaid Insurance. No adjustment was made on December 31, 2008, or on December 31, 2009. Required: Prepare appropriate journal entries (assume the 2009 books have not been closed). Ignore income taxes.

Accounting changes occur for which of the following reasons?

What is the effect of the error on Berkshire's 2009 income statement?

Companies should report the cumulative effect of an accounting change in the income statement:

A company failed to record unrealized gains of $20 million on its available for sale security investments. Its tax rate is 30%. As a result of this error, comprehensive income would be:

A company uses the percentage of sales 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: