20A2 - Intermediate Accounting - Acc. for Changes and Errors

Which of the following is not treated as a change in accounting principle?

• A change from LIFO to FIFO for inventory valuation.

• A change to a different method of depreciation for plant assets.

• A change from full-cost to successful efforts in the extractive industry.

• A change from completed-contract to percentage-of-completion.

Which of the following describes a change in reporting entity?

• A company acquires a subsidiary that is to be accounted for as a purchase.

• A manufacturing company expands its market from regional to nationwide.

• A company divests itself of a European branch sales office.

• Changing the companies included in combined financial statements.

Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate?

• Current period and prospectively

• Current period and retrospectively

• Retrospectively only

• Current period only

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:

• the ending inventory and retained earnings to be understated.

• the ending inventory, cost of goods sold, and retained earnings to be understated.

• no effect on net income, working capital, and retained earnings.

• cost of goods sold and net income to be understated.

The estimated life of a building that has been depreciated 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:

• continue to depreciate the building over the original 50-year life.

• depreciate the remaining book value over the remaining life of the asset.

• adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

• adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.