ACCT 557 Quiz 5 Perfect A+ Answer
1. (TCO E) Which of the following is accounted for as a change in accounting principle?
2. (TCO E) A company decides to switch from double-declining balance method to that straight-line method of recording depreciation. What type of change/correction is this?
3. (TCO E) On December 31, 2013, Gifts Galore, Inc. appropriately changed its inventory valuation method from weighted-average cost to FIFO method for financial statement and income tax purposes. The change will result in a $1,500,000 increase in the beginning inventory at January 1, 2013. Assume a 30% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is
4. (TCO E) As of January 1, 2011, Survival Industries, Inc. purchased a boat at a cost of $360,000.
When purchased, the company was using the double-declining depreciation method.
Key info on the asset at time of purchase is the following.
Estimated useful life is 6 years.
Residual Value is $0.
At the beginning of 2014, the CFO decided to change to straight-line depreciation method.
Compute the depreciation expense for 2014.
5. (TCO E) Mystical Corporation found the following errors in their year-end financial statements.
As of Dec. 2012 As of Dec. 2013
Ending Inventory $32,000 understated $46,000 overstated
Depreciation Exp. $7,000 understated
On December 31, 2013, a fully depreciated machine was sold for $35,000 but the sale was not recorded until January 15, 2014 when the cash was received. In 2012, a three-year insurance premium was prepaid for $45,000 of which the entire amount was expensed in the first year.
There were no other errors or corrections. Ignore any tax considerations.
What is the total net effect of errors on Mystical’s 2013 Retained Earnings?
6. (TCO E) The four types of accounting changes, including error correction, are
change in accounting principle;
change in accounting estimate;
change in reporting entity; and
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