Enter the letter corresponding to the response that best completes each of the following statements or questions.
 |
| 1 | |
Fickle Company purchased a machine at a total cost of $220,000 (no residual value) at the beginning of 2003. The machine was being depreciated over a 10-year life using the sum-of-the-years'-digits method. At the beginning of 2006, it was decided to change to straight-line. Ignoring taxes, the 2006 adjusting entry will include a debit to depreciation expense of: |
| | A) | $11,000 |
| | B) | $16,000 |
| | C) | $22,000 |
| | D) | $38,000 |
|
|
|
| 2 | |
In the previous question, an accompanying disclosure note would include each of the following except: |
| | A) | The cumulative effect of the change. |
| | B) | Justification that the change is preferable. |
| | C) | The effect of a change on any financial statement line items affected for all periods reported. |
| | D) | The effect of a change on per share amounts affected for all periods reported. |
|
|
|
| 3 | |
Which of the following is not usually accounted for retrospectively? |
| | A) | Change in the composition of firms reporting on a consolidated basis. |
| | B) | Change from LIFO to FIFO. |
| | C) | Change from expensing extraordinary repairs to capitalizing the expenditures. |
| | D) | Change from FIFO to LIFO. |
|
|
|
| 4 | |
Which of the following is accounted for prospectively? |
| | A) | Changes from Average to FIFO. |
| | B) | Change in reporting entity. |
| | C) | Correction of an error. |
| | D) | Change in the percentage used to determine bad debts. |
|
|
|
| 5 | |
Early in 2006, Brandon Transport discovered that a five-year insurance premium payment of $250,000 at the beginning of 2003 was debited to insurance expense. The correcting entry would include: |
| | A) | A debit to prepaid insurance of $250,000. |
| | B) | A debit to insurance expense of $100,000. |
| | C) | A debit to prepaid insurance of $150,000. |
| | D) | A credit to retained earnings of $100,000. |
|
|
|
| 6 | |
Which of the following is not a change in accounting principle usually accounted for by restrospectively revising prior financial statements? |
| | A) | Change from SYD to DDB. |
| | B) | Change from FIFO to the average method. |
| | C) | Change from the average method to FIFO. |
| | D) | Change from LIFO to FIFO. |
|
|
|
| 7 | |
State Materials, Inc. changed from the FIFO method of costing inventories to the weighted average method during 2006. When reported in the 2006 comparative financial statements, the 2005 inventory amount will be: |
| | A) | Decreased. |
| | B) | Increased. |
| | C) | Increased or decreased, depending on how prices changed during 2006. |
| | D) | Unaffected. |
|
|
|
| 8 | |
The prospective approach usually is required for: |
| | A) | A change in estimate. |
| | B) | A change in reporting entity. |
| | C) | A change in accounting principle. |
| | D) | A correction of an error. |
|
|
|
| 9 | |
Lamont Communications has amortized a patent on a straight-line basis since it was acquired in 2003 at a cost of $50 million. During 2006 management decided that the benefits from the patent would be received over a total period of 8 years rather than the 20-year legal life being used to amortize the cost. Lamont's 2006 financial statements should include: |
| | A) | A patent balance of $50 million. |
| | B) | Patent amortization expense of $2.5 million. |
| | C) | Patent amortization expense of $5 million. |
| | D) | A patent balance of $34 million. |
|
|
|
| 10 | |
Which of the following is not true regarding the correction of an error? |
| | A) | A journal entry is made to correct any account balances that are incorrect as a result of the error. |
| | B) | The correction is reported prospectively; previous financial statements are not revised. |
| | C) | Prior years' financial statements are restated to reflect the correction of the error (if the error affected those statements). |
| | D) | A disclosure note should describe the nature of the error and the impact of its correction on net income, income before extraordinary items, and earnings per share. |
|
|
|
| 11 | |
In 2006, it was discovered that Trilogy Company had debited expense for the full cost of an asset purchased on January 1, 2003. The cost was $12 million with no expected residual value. Its useful life was 5 years and straight-line depreciation is used by the company. The correcting entry assuming the error was discovered in 2006 before the adjusting and closing entries includes: |
| | A) | A credit to accumulated depreciation of $7.2 million. |
| | B) | A debit to accumulated depreciation of $4.8 million |
| | C) | A credit to an asset of $12 million. |
| | D) | A debit to retained earning of $4.8 million. |
|
|
|
| 12 | |
Blair Pen Company overstated its inventory by $10 million at the end of 2006. The discovery of this error during 2007, before adjusting or closing entries, would require: |
| | A) | A debit to inventory of $10 million. |
| | B) | A prospective adjustment in the 2007 income statement. |
| | C) | An increase in retained earnings. |
| | D) | None of the above. |
|
|
|
| 13 | |
The discovery of the error described in the previous question in 2008, before adjusting or closing entries, would require: |
| | A) | A credit to inventory of $10 million. |
| | B) | A decrease in retained earnings. |
| | C) | An increase in retained earnings. |
| | D) | None of the above. |
|
|
|
| 14 | |
A change in accounting principle that usually should not be reported by revising the financial statements of prior periods is a change from the: |
| | A) | The weighted-average method to the LIFO method. |
| | B) | The weighted-average method to the FIFO method. |
| | C) | FIFO method to the weighted-average method. |
| | D) | LIFO method to the weighted-average method. |
|
|
|
| 15 | |
Retrospective restatement usually is not applied for a: |
| | A) | Change in accounting principle. |
| | B) | Change in accounting estimate. |
| | C) | Change in entity. |
| | D) | Correction of error. |
|
|
|
| 16 | |
Retrospective restatement usually is appropriate for a change in: |
| | A) | Accounting Principle: Yes; Accounting Estimate: Yes |
| | B) | Accounting Principle: Yes; Accounting Estimate: No |
| | C) | Accounting Principle: No; Accounting Estimate: Yes |
| | D) | Accounting Principle: No; Accounting Estimate: No |
|
|
|
| 17 | |
A change in the residual value of a building depreciated on a straight-line basis is: |
| | A) | A change that should be reported in earnings of the period of change. |
| | B) | A change reported by restating prior years' financial statements. |
| | C) | An error correction. |
| | D) | A change reported in the current and future periods when the change affects both. |
|
|
.