ACTG 316 Ch.

20

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41. How many acceptable approaches are there for changes in accounting principles? A. One B. Two C. Three D. Four

B A D B A B B D

42. 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 three of the above are approaches for reporting accounting changes.

43. 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.

44. When a change in accounting principle is reported, what is sometimes sacrificed? A. Relevance. B. Consistency. C. Conservatism. D. Reliability.

45. When an accounting change is reported under the retrospective approach, prior years' financial statements are: A. Revised to reflect the use of the new principle. B. Reported as previously prepared. C. Left unchanged. D. Adjusted using prior period adjustment procedures.

46. Regardless of the type of accounting change that occurs, the most important responsibility is: A. To properly determine the tax effect. B. To communicate that a change has occurred. C. To compute the correct amount of the change. D. None of these.

47. Which of the following changes would not be accounted for using the prospective approach? A. A change to LIFO from average costing for inventories. B. A change from the individual application of the LCM rule to aggregate approach. C. A change from straight-line to double-declining balance depreciation. D. A change from double-declining balance to straight-line depreciation.

48. Accounting changes occur for which of the following reasons? A. Management is being fair and consistent in financial reporting. B. Management compensation is affected. C. Debt agreements are impacted. D. All of these.

ACTG 316 Ch. 20

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49. Which of the following changes should be accounted for using the retrospective approach? A. A change in the estimated life of a depreciable asset. B. A change from straight-line to declining balance depreciation. C. A change to the LIFO method of costing inventories. D. A change from the completed-contract method of accounting for long-term construction contracts.

D D D A A D D D

50. Companies should report the cumulative effect of an accounting change in the income statement: A. In the quarter in which the change is made. B. In the annual financial statements only. C. In the first quarter of the fiscal year in which the change is made. D. Never.

51. Disclosure notes related to a change in accounting principle under the retrospective approach should include: A. The effect of the change on executive compensation. B. The auditor's approval of the change. C. The SEC's permission to change. D. Justification for the change.

52. 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.

53. Which of the following is not an example of a change in accounting principle? A. A change in the useful life of a depreciable asset. B. A change from LIFO to FIFO for inventory costing. C. A change to the full costing method in the extractive industries. D. A change from the cost method to the equity method of accounting for investments.

54. When the retrospective approach is used for a change to the FIFO method, which of the following accounts is usually not adjusted? A. Deferred Income Taxes B. Inventory C. Retained Earnings D. All of these usually are adjusted

55. JFS Co. changed from straight-line to DDB depreciation. The journal entry to record the change includes: A. A credit to accumulated depreciation. B. A debit to accumulated depreciation. C. A debit to a depreciable asset. D. The change does not require a journal entry.

56. National Hoopla Company switches from sum-of-the-years' digits depreciation to straight-line depreciation. As a result: A. Current income tax payable increases. B. The cumulative effect decreases current period earnings. C. Prior periods' financial statements are restated. D. None of these.

ACTG 316 Ch. 20

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57. If a change is made from straight-line to SYD depreciation, one should record the effects by a journal entry including: A. A credit to deferred tax liability. B. A credit to accumulated depreciation. C. A debit to depreciation expense. D. No journal entry is required.

D D A C A D D B

58. On January 2, 2009, Tobias Company began using straight-line depreciation for a certain class of assets. In the past, the company had used double-declining-balance depreciation for these assets. As of January 2, 2009, the amount of the change in accumulated depreciation is $40,000. The appropriate tax rate is 40%. The separately reported change in 2009 earnings is: A. An increase of $40,000. B. A decrease of $40,000. C. An increase of $24

59. Which of the following accounting changes should not be accounted for prospectively? A. The correction of an error. B. A change from declining balance to straight-line depreciation. C. A change from straight-line to declining balance depreciation. D. A change in the expected salvage value of a depreciable asset.

60. Prior years' financial statements are restated under the: A. Current approach. B. Prospective approach. C. Retrospective approach. D. None of these

61. A change that uses the prospective approach is accounted for by: A. Implementing it in the current year. B. Reporting pro forma data. C. Retrospective restatement of all prior financial statements in a comparative annual report. D. Giving current recognition of the past effect of the change.

62. The cumulative effect of most changes in accounting principle is reported: A. In the income statement between extraordinary items and net income. B. In the income statement after income before income tax. C. In the income statement between discontinued operations and extraordinary items. D. In the balance sheet accounts affected.

63. When an accounting change is reported under the retrospective approach, account balances in the general ledger: A. Are not adjusted. B. Are closed out and then updated. C. Are adjusted net of the tax effect. D. Are adjusted to what they would have been had the new method been used in previous years.

64. During 2009, Hoffman Co. decides to use FIFO to account for its inventory transactions. Previously, it had used LIFO. A. Hoffman is not required to make any accounting adjustments. B. Hoffman has made a change in accounting principle requiring retrospective adjustment. C. Hoffman has made a change in accounting principle requiring prospective application. D. Hoffman needs to correct an accounting error.

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65. Which of the following would not be accounted for using the retrospective approach? A. A change from LIFO to FIFO inventory costing. B. A change from the completed contract method to the percent-of-completion method for long-term construction contracts. C. A change in depreciation methods. D. A change from the full cost method in the oil industry.

C D C A D C B C

66. Which of the following would not be accounted for using the prospective approach? A. A change to LIFO from FIFO for inventory costing. B. A change in price indexes used under the LIFO method of inventory costing. C. Amortization of the transition amount under SFAS 109. D. A change from the cash basis to accrual accounting.

67. Which of the following changes should be accounted for using the retrospective approach? A. A change in the estimated useful life of a depreciable asset. B. A change from straight-line to double-declining-balance depreciation. C. A change from percentage-of-completion to the completed contract method. D. A change to LIFO from FIFO inventory costing.

72. For 2008, P Co. estimated its two-year equipment warranty costs based on $23 per unit sold in 2008. Experience during 2009 indicated that the estimate should have been based on $25 per unit. The effect of this $2 difference from the estimate is reported A. In 2009 income from continuing operations. B. As an accounting change, net of tax, below 2009 income from continuing operations. C. As an accounting change requiring 2008 financial stat

73. Which of the following is a change in estimate? A. A change from the full costing method in the extractive industries. B. A change from percentage-of-completion to the completed contract method. C. Consolidating a subsidiary for the first time. D. A change in the termination rate of employees under a pension plan.

74. Which of the following is not a change in estimate? A. A change in the life of a depreciable asset. B. A change in the mortality rate used for pension computations. C. A change from the cost to the equity method in accounting for investments. D. A change in the bad debt percentage.

75. A change in the residual value of equipment is treated ______________. A. currently. B. prospectively. C. retrospectively. D. None of these.

76. Gore Inc. recorded a liability in 2009 for probable litigation losses of $2 million. Ultimately, $5 million in legitimate warranty claims were filed by Gore's customers. A. Gore has made a change in accounting principle, requiring retrospective adjustment. B. Gore needs to correct an accounting error. C. Gore is required to adjust a change in accounting estimate prospectively. D. Gore is not required to make any accounting adjustments.

ACTG 316 Ch. 20

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83. Diversified Systems, Inc. this year reports consolidated financial statements in place of statements of individual companies reported in previous years. This results in A. An accounting change that should be reported prospectively. B. An accounting change that should be reported by restating the financial statements of all prior periods presented. C. A correction of an error. D. Neither an accounting change nor a correction of an error.

B C D A A D A A

84. Z Company has included in its consolidated financial statements this year a subsidiary acquired several years ago that was appropriately excluded from consolidation last year. 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 c

85. Which of the following is a change in reporting entity? A. A change to the full cost method in the extractive industries. B. Switching to the completed contract method. C. A change from the cost to the equity method. D. Consolidating a subsidiary not previously included in consolidated financial statements.

86. 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.

88. An item that should be reported as a prior period adjustment is the: A. Correction of an error in depreciation from last year. B. Payment of taxes due to a tax audit of last year's tax return. C. Collection of a previously written off bad debt. D. Receipt of the proceeds of a note receivable that was due last year.

89. Cooper Inc. took physical inventory at the end of 2008. Purchases that were acquired FOB destination were in transit, so they were not included in the physical count. A. Cooper needs to correct an accounting error. B. Cooper has made a change in accounting principle, requiring retrospective adjustment. C. Cooper is required to adjust a change in accounting estimate prospectively. D. Cooper is not required to make any accounting adjustmen

90. Washburn Co. spent $10 million to purchase a new patented technology, debiting an intangible asset and crediting cash. Washburn uses SYD depreciation on its depreciable assets and plans to amortize the intangible asset on a straight-line basis. A. Washburn is not required to make any accounting adjustments. B. Washburn is required to adjust a change in accounting estimate prospectively. C. Washburn has made a change in accounting principl

91. In December 2009, Kojak Insurance Co. received $500,000 in premiums for a two-year property insurance policy. The company recorded the transaction by debiting cash and crediting insurance premium revenue for the full amount. An internal audit conducted in early 2010 flagged this transaction. A. Kojak needs to correct an accounting error. B. Kojak has made a change in accounting principle, requiring retrospective adjustment. C. Kojak is re