Question 1

In 2014,a company changed from the FIFO method of accounting for inventory to LIFO.The company's 2013 and 2014 comparative financial statements will reflect which method or methods? 2013 2014

Accepted Answer

The answer of In 2014,a company changed from the FIFO...

Question 2

Which of the following should NOT be reported retroactively?

Accepted Answer

The answer of Which of the following should NOT be...

Question 3

The September 30,2014,physical inventory of Pollack Corporation appropriately included $6,300 of merchandise purchased on account that was not recorded in purchases until October 2014.What effect will this error have on September 30,2014,assets,liabilities,retained earnings,and earnings for the year then ended,respectively?

Accepted Answer

The inventory is included in assets, so there is no effect on assets. Liabilities are understated because the purchase was not recorded. Retained earnings and earnings are overstated because the cost of goods sold is understated due to the unrecorded purchase.

Question 4

In 2014,a company changed from the LIFO method of accounting for inventory to FIFO.The company's 2013 and 2014 comparative financial statements will reflect which method or methods? 2013 2014

Accepted Answer

When a company changes its inventory accounting method from LIFO to FIFO, the change is applied retrospectively. This means that all previous financial statements that are presented for comparative purposes must be restated as if the new method had always been used. Therefore, both the 2013 and 2014 financial statements will reflect the FIFO method.

Question 5

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?

Accepted Answer

Recognition of a gain on disposal of fully depreciated property is not an accounting error as it is a result of a specific transaction and not a mistake in recording or reporting financial information. The other options given are examples of accounting errors.

Question 6

Which of the following is characteristic of a change in accounting principle?

Accepted Answer

A change in accounting principle requires retrospective adjustment of the financial statements for all years reported and reporting the cumulative effect of the change in income for all preceding years as an adjustment to the beginning balance of retained earnings for the earliest year reported. Therefore, option D is the correct answer. Option A is incorrect because reporting of pro forma amounts for prior periods is not required for a change in accounting principle. Option B is incorrect because a change in accounting principle does affect the financial statements of prior periods. Option C is incorrect because a change in accounting principle must be disclosed in the financial statements.

Question 7

Which of the following is characteristic of a change in accounting estimate?

Accepted Answer

Changes in accounting estimates affect only the current and future periods' financial statements, not the past periods. They are accounted for prospectively.

Question 8

Which of the following would cause income of the current period to be understated?

Accepted Answer

The answer of Which of the following would cause income...

Question 9

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

Accepted Answer

The exclusion of goods from both the ending inventory and purchase records means that the cost of goods available for sale and cost of goods sold are unaffected, resulting in no impact on net income, working capital, or retained earnings.

Question 10

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

Accepted Answer

If the beginning inventory is overstated, then the cost of goods sold will be overstated and the net income will be understated. However, the assets will remain correct because the value of inventory is included in assets and the error only relates to the beginning inventory, not any other assets.

Question 11

The ending inventory for Wyeth Company was overstated by $6,000 in 2014.The overstatement will cause Wyeth Company's

Accepted Answer

The answer of The ending inventory for Wyeth Company was...

Question 12

Ending inventory for 2012 is overstated by $5,500 due to a faulty count and costing.The tax rate is 39%.Assume the same accounting methods for both financial reporting and taxes.The error is discovered late in 2014.The 2014 annual report shows the financial statements for 2012,2013,2014 on a comparative basis. Which of the following is correct regarding the reporting of this error in the 2014 annual report?

Accepted Answer

When an error is discovered in previously issued financial statements, the correction is made by adjusting the beginning retained earnings of the earliest period presented in the comparative financial statements. No journal entry is made to correct the prior years directly. Instead, the financial statements for those years are restated to reflect the correction. This means the 2012 and 2013 financial statements shown in the 2014 annual report should be corrected to reflect the accurate ending inventory figures.

Question 13

Which of the following types of errors will NOT self-correct in the next year?

Accepted Answer

Depreciation expense overstated for the year will not self-correct because the depreciation schedule will continue to be based on the incorrect, overstated amount unless an adjustment is made.

Question 14

A change in the estimated useful life of a building

Accepted Answer

A change in the estimated useful life of a building affects the depreciation on the building beginning with the year of the change. Generally accepted accounting principles allow for changes in the estimated useful life of an asset if there is evidence of a change in the useful life. However, it does not require a retroactive adjustment to all accounts affected, back to the year of the acquisition of the building, nor does it create a new account to be recognized on the income statement reflecting the difference in net income up to the beginning of the year of the change.

Question 15

Which of the following,if discovered by Somber Company in the accounting period subsequent to the period of occurrence,requires the company to report the correction of an error?

Accepted Answer

Capitalization of an expense is a material error and requires correction in the subsequent accounting period. The other options are changes in accounting estimates or accounting policies, which do not require correction of errors.

Question 16

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

Accepted Answer

A change in accounting principle refers to a change in the method or techniques used to prepare financial statements, while a change in depreciation method is a change in an estimate used in generating financial statements. Therefore, the change from straight-line to accelerated method of depreciation is not accounted for as a change in accounting principle.

Question 17

When a firm changed its method of accounting for inventory from LIFO to FIFO in 2014,it decided that the 2014 financial statements should be shown comparatively with the 2013 results. Which of the following statements concerning reporting the change in the retained earnings statement is correct?

Accepted Answer

The answer of When a firm changed its method of...

Question 18

Which of the following is a counterbalancing error?

Accepted Answer

The answer of Which of the following is a counterbalancing...

Question 19

On December 27,2014,Admission Company ordered merchandise for resale from Eviction,Inc. ,that cost $7,000 (terms cash within 10 days).Eviction shipped the merchandise f.o.b.shipping point on December 28,2014,and the goods arrived on January 2,2015.The invoice was received on December 30,2014.Admission Company did not record the purchase in 2014 and did not include the goods in ending inventory.The effects on Admission Company's 2014 financial statements were

Accepted Answer

The goods were shipped FOB shipping point on December 28, 2014, which means ownership transferred to Admission Company at that point. Not recording the purchase in 2014 and not including the goods in ending inventory means that both assets (inventory) and liabilities (accounts payable) were understated. Income and owners' equity would not be directly affected by this transaction in 2014 since it's a purchase of inventory, not an expense until sold.

Question 20

Queener Corporation uses a periodic inventory system and neglected to record a purchase of merchandise on account at year-end.This merchandise was omitted from the year-end physical count.How will these errors affect Queener's assets,liabilities,and stockholders' equity at year-end and net earnings for the year? Stockholders'
Assets Liabilities Equity Net Earnings

Accepted Answer

The answer of Queener Corporation uses a periodic inventory system...

Quiz 20: Accounting Changes and Error Corrections