AC 302 Week 8 EXAM Quiz
Question 1 Which type of accounting change should always be accounted for in current and future periods?
Question 2. Question : Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line depreciation method?
Question 3. Question : On January 1, 2012, Nobel Corporation acquired machinery at a cost of $1,200,000. Nobel adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated life of ten years, with no residual value. At the beginning of 2015, a decision was made to change to the double-declining balance method of depreciation for this machine.
The amount that Nobel should record as depreciation expense for 2015 is
Question 4. Question : Which of the following statements is correct?
Question 5. Question : On January 1, 2012, Neal Corporation acquired equipment at a cost of $720,000. Neal adopted the sum-of-the-years’-digits method of depreciation for this equipment and had been recording depreciation over an estimated life of eight years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for this equipment. The depreciation expense for 2015 would be
Question 6. Question : Which of the following disclosures is required for a change from LIFO to FIFO?
Question 7. Question : On December 31, 2015 Dean Company changed its method of accounting for inventory from weighted average cost method to the FIFO method. This change caused the 2015 beginning inventory to increase by $840,000. The cumulative effect of this accounting change to be reported for the year ended 12/31/15, assuming a 40% tax rate, is
Question 8. Question : If, at the end of a period, a 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
Question 9. Question : Link Co. purchased machinery that cost $1,800,000 on January 4, 2013. The entire cost was recorded as an expense. The machinery has a nine-year life and a $120,000 residual value. The error was discovered on December 20, 2015. Ignore income tax considerations.
Before the correction was made, and before the books were closed on December 31, 2015, retained earnings was understated by
Question 10. Question : The estimated life of a building that has been depreciated for 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should
Question 11. Question : Ernst Company purchased equipment that cost $2,250,000 on January 1, 2014. The entire cost was recorded as an expense. The equipment had a nine-year life and a $90,000 residual value. Ernst uses the straight-line method to account for depreciation expense. The error was discovered on December 10, 2016. Ernst is subject to a 40% tax rate.
Ernst- net income for the year ended December 31, 2014, was understated by
Question 12. Question : Armstrong Inc. is a calendar-year corporation. Its financial statements for the years ended 12/31/14 and 12/31/15 contained the following errors:
2014 2015
Ending inventory $25,000 overstatement $40,000 understatement
Depreciation expense 10,000 understatement 20,000 overstatement
Assume that the 2014 errors were not corrected and that no errors occurred in 2013. By what amount will 2014 income before income taxes be overstated or understated?
Question 13. Question : An example of a correction of an error in previously issued financial statements is a change
Question 14. Question : During 2015, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. Gross profit figures under both methods for the past three years appear below:
Completed-Contract Percentage-of-Completion
2013 $ 475,000 $ 900,000
2014 625,000 950,000
2015 700,000 1,050,000
$1,800,000 $2,900,000
Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of
Question 15. Question : On January 1, 2015, Frost Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in a $700,000 increase in the January 1, 2015 inventory. Assume that the income tax rate for all years is 30%. The cumulative effect of the accounting change should be reported by Frost in its 2015
Question 16. Question : Langley Company's December 31 year-end financial statements contained the following errors:
Dec. 31, 2014 Dec. 31, 2015
Ending inventory $22,500 understated $33,000 overstated
Depreciation expense 6,000 understated
An insurance premium of $54,000 was prepaid in 2014 covering the years 2014, 2015, and 2016. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2015, fully depreciated machinery was sold for $28,500 cash, but the sale was not recorded until 2016. There were no other errors during 2015 or 2016 and no corrections have been made for any of the errors. Ignore income tax considerations.
What is the total effect of the errors on the balance of Langley's retained earnings at December 31, 2015?
Question 17. Question : Bishop Co. began operations on January 1, 2014. Financial statements for 2014 and 2015 con- tained the following errors:
Dec. 31, 2014 Dec. 31, 2015
Ending inventory $132,000 too high $146,000 too low
Depreciation expense 84,000 too high â€â€
Insurance expense 60,000 too low 60,000 too high
Prepaid insurance 60,000 too high â€â€
In addition, on December 31, 2015 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2016. No corrections have been made for any of the errors. Ignore income tax considerations.
The total effect of the errors on the amount of Bishop's working capital at December 31, 2015 is understated by
Question 18. Question : Which of the following is not a retrospective-type accounting change?
Question 19. Question : Bishop Co. began operations on January 1, 2014. Financial statements for 2014 and 2015 con- tained the following errors:
Dec. 31, 2014 Dec. 31, 2015
Ending inventory $132,000 too high $146,000 too low
Depreciation expense 84,000 too high â€â€
Insurance expense 60,000 too low 60,000 too high
Prepaid insurance 60,000 too high â€â€
In addition, on December 31, 2015 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2016. No corrections have been made for any of the errors. Ignore income tax considerations.
The total effect of the errors on Bishop's 2015 net income is
Question 20. Question : Black, Inc. is a calendar-year corporation whose financial statements for 2014 and 2015 included errors as follows:
Year Ending Inventory Depreciation Expense
2014 $162,000 overstated $135,000 overstated
2015 64,000 understated 45,000 understated
Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2014, or at December 31, 2015. Ignoring income taxes, by how much should Black's retained earnings be retroactively adjusted at January 1, 2016?
Question 21. Question : Lanier Company began operations on January 1, 2014, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed:
Final Inventory 2014 2015
FIFO $320,000 $360,000
LIFO 240,000 300,000
Net Income (computed under the FIFO method) 500,000 650,000
Based upon the above information, a change to the LIFO method in 2015 would result in net income for 2015 of
Question 22. Question : On December 31, 2015, special insurance costs, incurred but unpaid, were not recorded. If these insurance costs were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings in the December 31, 2015 balance sheet?
Question 23. Question : Langley Company's December 31 year-end financial statements contained the following errors:
Dec. 31, 2014 Dec. 31, 2015
Ending inventory $22,500 understated $33,000 overstated
Depreciation expense 6,000 understated
An insurance premium of $54,000 was prepaid in 2014 covering the years 2014, 2015, and 2016. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2015, fully depreciated machinery was sold for $28,500 cash, but the sale was not recorded until 2016. There were no other errors during 2015 or 2016 and no corrections have been made for any of the errors. Ignore income tax considerations.
What is the total net effect of the errors on the amount of Langley's working capital at December 31, 2015?
Question 24. Question : On January 1, 2012, Knapp Corporation acquired machinery at a cost of $750,000. Knapp adopted the double-declining balance method of depreciation for this machinery and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of 2015, a decision was made to change to the straight-line method of depreciation for the machinery. The depreciation expense for 2015 would be
Question 25. Question : On January 1, 2012, Piper Co., purchased a machine (its only depreciable asset) for $600,000. The machine has a five-year life, and no salvage value. Sum-of-the-years'-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2015, for financial statement reporting, Piper decided to change to the straight-line method for depreciation of the machine. Assume that Piper can justify the change.
Piper's income before depreciation, before income taxes, and before the cumulative effect of the accounting change (if any), for the year ended December 31, 2015, is $500,000. The income tax rate for 2015, as well as for the years 2012-2014, is 30%. What amount should Piper report as net income for the year ended December 31, 2015?
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