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How many acceptable approaches are there for changes in accounting principles?


A) One.
B) Two.
C) Three.
D) Four.

E) B) and D)
F) A) and B)

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What is the effect of the error on Berkshire's 12/31/2016 balance sheet?


A) There are no errors in the 12/31/2016 balance sheet.
B) Assets understated by $600,000 and shareholders' equity understated by $600,000.
C) Assets understated by $420,000 and shareholders' equity understated by $420,000.
D) Liabilities understated by $180,000 and shareholders' equity overstated by $420,000.

E) None of the above
F) B) and C)

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What is the effect of the error on Berkshire's 2016 income statement?


A) Net income is understated by $420,000.
B) Cost of goods sold is understated by $420,000.
C) There are no errors in the 2016 income statement.
D) None of these answer choices is correct.

E) A) and D)
F) C) and D)

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Retrospective restatement usually is appropriate for a change in: Retrospective restatement usually is appropriate for a change in:

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Which of the following is not a change in accounting principle that usually is accounted for by retrospectively revising prior financial statements?


A) Change from FIFO to the average method of inventory costing.
B) Change from SYD to DDB depreciation.
C) Change from the average method of inventory costing to FIFO.
D) Change from the LIFO to the FIFO method of inventory costing.

E) B) and D)
F) A) and B)

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If undetected,what is the effect of this error on Berkshire's 12/31/2015 balance sheet?


A) Assets understated by $600,000 and shareholders' equity understated by $600,000.
B) Assets understated by $420,000 and shareholders' equity understated by $420,000.
C) Assets understated by $600,000,liabilities understated by $180,000,and shareholders' equity understated by $420,000.
D) None of the above is correct.

E) None of the above
F) All of the above

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A change in the residual value of equipment is accounted for:


A) As a prior period adjustment.
B) Prospectively.
C) Retrospectively.
D) None of these answer choices is correct.

E) A) and C)
F) All of the above

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If inventory is understated at the end of 2015 and the error is not discovered,how will net income be affected in 2016?

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If inventory is understated at the end o...

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Which of the following statements is not true regarding the correction of an error?


A) The correction is reported prospectively and previous financial statements are not revised.
B) A journal entry is needed to correct any account balances that are incorrect as a result of the error.
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.

E) None of the above
F) A) and B)

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Which of the following is not a change in reporting entity?


A) Reporting using comparative financial statements for the first time.
B) Changing the companies that comprise a consolidated group.
C) Presenting consolidated financial statements for the first time.
D) All are changes in reporting entity.

E) A) and C)
F) A) and B)

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Venice Company purchased a gondola for $440,000 (no residual value) at the beginning of 2013.The gondola was being depreciated over a 10-year life using the sum-of-the-years'-digits method.At the beginning of 2016,it was decided to change to straight-line.Ignoring taxes,the 2016 adjusting entry will include a debit to depreciation expense of:


A) $76,000
B) $44,000
C) $32,000
D) $22,000

E) A) and D)
F) B) and D)

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Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S.GAAP than with International Financial Reporting Standards (IFRS) ?


A) Change in estimated useful life of depreciable assets.
B) Change from the FIFO method of costing inventories to the LIFO method.
C) Change in depreciation method.
D) Change in reporting entity.

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

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


A) The change approach.
B) The retrospective approach.
C) The prospective approach.
D) All of these answer choices are approaches for reporting accounting changes.

E) A) and B)
F) A) and C)

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Most,but not all,changes in accounting principle are reported using the retrospective approach.

A) True
B) False

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Z Company acquired a subsidiary several years ago that was appropriately excluded from consolidation last year.This year Z has consolidated the subsidiary in its financial statements.This results in:


A) An accounting change that should be reported prospectively.
B) A correction of an error.
C) An accounting change that should be reported by restating the financial statements of all prior periods presented.
D) Neither an accounting change nor a correction of an error.

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

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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) Prior years plus the current year.
C) The current year only.
D) Current and future years.

E) A) and C)
F) A) and D)

Correct Answer

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Which of the following is an example of a change in accounting principle?


A) A change in inventory costing methods.
B) A change in the estimated useful life of a depreciable asset.
C) A change in the actuarial life expectancies of employees under a pension plan.
D) Consolidating a new subsidiary.

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

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In 2016,due to a change in marketing forecasts,Barney Corporation reduced the projected life of its patent for producing round dice.The cumulative patent amortization prior to 2016 would have been $10 million higher had the new life been used.Barney's tax rate is 30%.Barney's retained earnings as of December 31,2016,would be:


A) Overstated by $7 million.
B) Overstated by $3 million.
C) Overstated by $10 million.
D) Unaffected.

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

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All changes in estimate are accounted for retrospectively.

A) True
B) False

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How are accounting errors treated?

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Accounting errors are treated retrospect...

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