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Test Bank CHAPTER 22 ACCOUNTING CHANGES AND ERROR ANALYSIS

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Test Bank CHAPTER 22 ACCOUNTING CHANGES AND ERROR ANALYSIS

CHAPTER 22

 

ACCOUNTING CHANGES AND ERROR ANALYSIS

 

TRUE-FALSE—Conceptual

                Description

                F              1.            Change in accounting estimate.

                T              2.            Errors in financial statements.

                F              3.            Adoption of a new principle.

                T              4.            Retrospective application of accounting principle.

                F              5.            Reporting cumulative effect of change in principle.

                T              6.            Disclosure requirements for a change in principle.

                T              7.            Indirect effect of an accounting change.

                T              8.            Retrospective application impracticality.

                F              9.            Reporting changes in accounting estimates.

                T              10.          Change in principle vs. change in estimate.

                F              11.          Accounting for change in depreciation method.

                F              12.          Accounting for change in reporting entities.

                T              13.          Example of a change in reporting entities.

                F              14.          Accounting error vs. change in estimate.

                T              15.          Accounting for corrections of errors.

                T              16.          New principle created by FASB standard.

                F              17.          Balance sheet errors.

                F              18.          Definition of counterbalancing errors.

                T              19.          Accounting for counterbalancing errors.

                T              20.          Correcting entries for noncounterbalancing errors.

 

 

MULTIPLE CHOICE—Conceptual

                Description

                b             21.          Accounting changes and consistency concept.

                b             22.          Identify changes in accounting principle.

                c              23.          Identify a non-retrospective change.

                d             24.          Identify a change in accounting principle.

                a              25.          Entry to record a change in depreciation methods.

                c              26.          Disclosures required for a change in depreciation methods.

                c              27.          Change from percentage-of-completion to completed-contracts.

                d             28.          Disclosures required for a change from LIFO to FIFO.

                b             29.          Change from FIFO to LIFO.

                c              30.          Change in accounting estimate.

                a              31.          Change in accounting estimate.

                b             32.          Identify a change in accounting estimate.

                b             33.          Change in accounting estimate.

                c              34.          Identify a change in accounting estimate.

                d             35.          Identify a change in reporting entity.

                c              36.          Retroactive reporting a change in reporting entity.

                c              37.          Identify a correction of an error.

                b             38.          Identification of counterbalancing errors.

MULTIPLE CHOICE—Conceptual  (cont.)

                Description

                c              39.          Impact of failure to record purchase and count ending inventory.

                c              40.          Impact of failure to record purchase and count ending inventory.

 

 

MULTIPLE CHOICE—Computational

                Description

                b             41.          Calculate cumulative effect of a change in depreciation method.

                b             42.          Calculate cumulative effect of a change in depreciation method.

                c              43.          Calculate net income with change in accounting principle with tax effects.

                d             44.          Calculate cumulative effect of accounting change.

                c              45.          Calculate depreciation expense after change in accounting principle.

                d             46.          Calculate cumulative effect of a change on retained earnings.

                b             47.          Calculate cumulative effect of a change on retained earnings.

                c              48.          Compute depreciation expense after a change in depreciation methods.

                b             49.          Calculate cumulative effect of a change in inventory methods.

                c              50.          Calculate net income after a change to LIFO method.

                a              51.          Calculate net income with change from FIFO to LIFO.

                b             52.          Calculate depreciation after a change in estimate.

                a              53.          Calculate net income with change in an accounting estimate.

                a              54.          Determine depreciation expense after a change in estimated life.

                a              55.          Compute effect of errors on income before taxes.

                c              56.          Compute effect of errors on retained earnings.

                d             57.          Calculate effect of errors on net income.

                c              58.          Calculate effect of errors on working capital.

                c              59.          Calculate effect of errors on retained earnings.

                a              60.          Effect of errors on income and retained earnings.

                a              61.          Calculate effect of errors on net income.

                b             62.          Calculate effect of errors on retained earnings.

                c              63.          Calculate effect of errors on working capital.

                d             64.          Determine cumulative effect of error on income statement.

                c              65.          Determine the understatement of retained earnings.

                a              66.          Calculate effect of error on net income.

                c              67.          Compute effect of error on retained earnings.

 

 

MULTIPLE CHOICE—CPA Adapted

Description

                b             68.          Identify a change in accounting principle.

                c              69.          Cumulative effect of a change from weighted-average to LIFO.

                a              70.          Reporting a change to FIFO from LIFO.

                a              71.          Balance of accumulated depreciation after a change in estimate.

                b             72.          Determine carrying value of a patent with a change in estimate.

                d             73.          Reporting royalty income when amount realized differs from estimate.

                b             74.          Depreciation expense to be recorded following an error.

                c              75.          Impact of failure to accrue insurance costs.

                a              76.          Retained earnings balance with multiple errors.

EXERCISES

                Item      Description

                E22-77   Matching accounting changes to situations.

                E22-78   How changes or corrections are recognized.

                E22-79   Matching disclosures to situations.

                E22-80   Change in accounting principle.

                E22-81   Change in estimate, change in entity, corrections of errors.

                E22-82   Changes in depreciation methods, estimates.

                E22-83   Noncounterbalancing error.

                E22-84   Effects of errors.

                E22-85   Effects of errors.

 

 

PROBLEMS

                Item      Description

                P22-86  Accounting for changes and error corrections.

                P22-87  Corrections of errors.

                P22-88  Error corrections and adjustments.

 

 

 

CHAPTER LEARNING OBJECTIVES

 

                1.            Identify the types of accounting changes.

 

                2.            Describe the accounting for changes in accounting principles.

 

                3.            Understand how to account for retrospective accounting changes.

 

                4.            Understand how to account for impracticable changes.

 

                5.            Describe the accounting for changes in estimates.

 

                6.            Identify changes in a reporting entity.

 

                7.            Describe the accounting for correction of errors.

 

                8.            Identify economic motives for changing accounting methods.

 

                9.            Analyze the effect of errors.

 

 

 

SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS

 

Item      Type      Item      Type      Item      Type      Item      Type      Item      Type      Item      Type      Item      Type

Learning Objective 1

1.            TF           2.            TF           21.          MC                                                                                                                        

Learning Objective 2

3.            TF           22.          MC         24.          MC         68.          MC         78.          E                                                             

4.            TF           23.          MC         25.          MC         77.          E                                                                                             

Learning Objective 3

5.            TF           26.          MC         43.          MC         46.          MC         49.          MC         79.          E                             

6.            TF           41.          MC         44.          MC         47.          MC         69.          MC         80.          E                             

7.            TF           42.          MC         45.          MC         48.          MC         78.          E              86.          P                            

Learning Objective 4

8.            TF           28.          MC         50.          MC         70.          MC         79.          E              86.          P                            

27.          MC         29.          MC         51.          MC         78.          E              80.          E                                                             

Learning Objective 5

9.            TF           30.          MC         33.          MC         53.          MC         72.          MC         78.          E              82.          E

10.          TF           31.          MC         34.          MC         54.          MC         73.          MC         79.          E              86.          P

11.          TF           32.          MC         52.          MC         71.          MC         77.          E              81.          E              88.          P

Learning Objective 6

12.          TF           13.          TF           35.          MC         36.          MC         77.          E              78.          E              81.          E

Learning Objective 7

14.          TF           37.          MC         74.          MC         79.          E              86.          P                                                            

15.          TF           55.          MC         77.          E              81.          E              87.          P                                                            

16.          TF           56.          MC         78.          E              83.          E              88.          P                                                            

Learning Objective 9

17.          TF           38.          MC         58.          MC         62.          MC         66.          MC         84.          E                             

18.          TF           39.          MC         59.          MC         63.          MC         67.          MC         85.          E                             

19.          TF           40.          MC         60.          MC         64.          MC         75.          MC         86.          P                            

20.          TF           57.          MC         61.          MC         65.          MC         76.          MC         87.          P                            

 

                Note:    TF = True-False

                                MC = Multiple Choice

                                E = Exercise

                                P = Problem

 

 

TRUE-FALSE—Conceptual

 

                1.            A change in accounting principle is a change that occurs as the result of new information or additional experience.

 

                2.            Errors in financial statements result from mathematical mistakes or oversight or misuse of facts that existed when preparing the financial statements.

 

                3.            Adoption of a new principle in recognition of events that have occurred for the first time or that were previously immaterial is treated as an accounting change.

 

                4.            Retrospective application refers to the application of a different accounting principle to recast previously issued financial statements—as if the new principle had always been used.

 

                5.            When a company changes an accounting principle, it should report the change by reporting the cumulative effect of the change in the current year’s income statement.

 

                6.            One of the disclosure requirements for a change in accounting principle is to show the cumulative effect of the change on retained earnings as of the beginning of the earliest period presented.

 

                7.            An indirect effect of an accounting change is any change to current or future cash flows of a company that result from making a change in accounting principle that is applied retrospectively.

 

                8.            Retrospective application is considered impracticable if a company cannot determine the prior period effects using every reasonable effort to do so.

 

                9.            Companies report changes in accounting estimates retrospectively.

 

                10.          When it is impossible to determine whether a change in principle or change in estimate has occurred, the change is considered a change in estimate.

 

                11.          Companies account for a change in depreciation methods as a change in accounting principle.

 

                12.          When companies make changes that result in different reporting entities, the change is reported prospectively.

 

                13.          Changing the cost or equity method of accounting for investments is an example of a change in reporting entity.

 

                14.          Accounting errors include changes in estimates that occur because a company acquires more experience, or as it obtains additional information.

 

                15.          Companies record corrections of errors from prior periods as an adjustment to the beginning balance of

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Test Bank CHAPTER 22 ACCOUNTING CHANGES AND ERROR ANALYSISDescription F 1. Change in accounting estimate. T 2. Errors in financial statements. F 3. Adoption of a new principle. T 4. Retrospective application of accounting principle. F 5. Reporting cumulative effect of change in principle. T 6. Disclosure requirements for a change in principle. T 7. Indirect effect of an accounting change. T 8. Retrospective application impracticality. F 9. Reporting changes in accounting estimate...
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