Accounting Changes & Error Corrections MC

Question 1

Which of the following is a change in accounting principle?

a. change the actuarial estimate of a pension plan.
b. change the subsidiaries included in financial statements.
c. change the method of inventory costing.
d. change the useful life of an asset.

Answer 1

c. change the method of inventory costing.

Question 2

Which of the following are changes in accounting estimates? (Select all that apply:

a. change in the useful life of an asset.
b. change in inventory costing method.
c. change in estimate of periods benefited by an intangible asset.
d. adoption of a new FASB standard.

Answer 2

a. change in the useful life of an asset.
c. change in estimate of periods benefited by an intangible asset.

Question 3

Failure to record an adjusting entry is a change that requires a:

a. change in accounting principle.
b. correction of an error.
c. change in estimate.
d. change in reporting entity.

Answer 3

b. correction of an error.

Question 4

When an adjustment is made to the balance of retained earnings at the beginning of the adoption period to reflect the impact of a change in accounting principle, the _______ method is used.

a. prospective
b. restatement
c. modified retrospective
d. retrospective

Answer 4

c. modified retrospective

Question 5

The prospective approach for reporting a change in accounting principle requires that:

a. no change in made to previous years financial statements.
b. financial statements are restated to reflect the new method in all years presented.
c. previous financial statements are revised to reflect the new method.

Answer 5

a. no change in made to previous years financial statements.

Question 6

When a company makes accounting choices that cause earnings to follow a steady trend from year to year, this manipulation is called income ___________.

Answer 6

smoothing

Question 7

Which of the following is a change in accounting estimate?

a. change in inventory method
b. change from completed contract method to percentage of completion method.
c. change in actuarial calculations pertaining to a pension plan.
d. change in subsidaries included in consolidated financial statements.

Answer 7

c. change in actuarial calculations pertaining to a pension plan.

Question 8

Modified retrospective application for a change in accounting principle requires that:

a. no adjustment is made to retained earnings
b. an adjustment is made to retained earnings at the beginning of the adoption period.
c. an adjustment is made to retained earnings for the earliest period presented.

Answer 8

b. an adjustment is made to retained earnings at the beginning of the adoption period.

Question 9

In year 2, Rossman Corp. changed its inventory method from FIFO to the weighted-average method. The change resulted in a decrease in beginning inventory for year 2 of $10,000. What were the income statement effects of this change?

a. EPS for year 1 decreased
b. EPS for year 2 increased
c. NI in year 2 increased
d. COGS in year 1 decreased

Answer 9

a. EPS for year 1 decreased

Question 10

When an adjustment is made to the balance of retained earnings at the beginning of the adoption period to reflect the impact of a change in accounting principle, the ______ approach is used.

a. restatement
b. prospective
c. retrospective
d. modified retrospective

Answer 10

d. modified retrospective