CHAPTER 59: ERROR CORRECTION Flashcards
- If ending inventory is understated, the effect is to
a. Overstate the net purchases
b. Overstate the gross margin
c. Overstate the cost of goods available for sale
d. Overstate the cost of goods sold
d. Overstate the cost of goods sold
- If beginning inventory is overstated, the effect is to
a. Overstate net purchases
b. Overstate gross margin
c. Overstate cost of goods available for sale
d. Understate cost of goods sold
c. Overstate cost of goods available for sale
- The overstatement of ending inventory in the current year will cause
a. Retained earnings to be understated in the current year-end statement of financial position
b. Cost of goods sold to be understated in the income statement of next year.
c. Cost of goods sold to be overstated in the income statement of the current year.
d. Statement of financial position not to be misstated in the next year-end.
d. Statement of financial position not to be misstated in the next year-end.
- At the middle of the year, an entity paid for insurance premium for the current year and debited the amount to prepaid insurance. At year-end, the bookkeeper forgot to record the amount expired. In the financial statements prepared at year-end, the omission
a. Overstates owners’ equity
b. Understates assets
c. Understates net income
d. Overstates liabilities
a. Overstates owners’ equity
- If at end of current reporting period, an entity erroneously excluded some goods from ending inventory and also erroneously did not record the purchase of these goods, these errors would cause
a. The ending inventory to be overstated
b. The retained earnings to be understated
c. No effect on net income, working capital and retained earnings
d. Net income to be understated
c. No effect on net income, working capital and retained earnings
6 When the current year’s ending inventory is overstated
a.The current year’s cost of goods sold is overstated.
b. The current year’s total assets are understated.
c. The current year’s net income is overstated.
d. The next year’s net income is overstated.
c. The current year’s net income is overstated.
- An overstatement of ending inventory in the current period would result in income of the next period being
a. Overstated
b. Understated
c. Correctly stated
d. The answer cannot be determined from the information
b. Understated
Since overstated ‘yung current ending inventory,magkukulang ‘yung sa nxt
8 Which would result if the current year’s ending inventory is understated in the cost of goods sold calculation?
a. Cost of goods sold would be overstated
b. Total assets would be overstated
c. Net income would be overstated
d. Retained earnings would be overstated
a. Cost of goods sold would be overstated
- If the beginning inventory in the current year was overstated, the income for the current year would be
a. Understated and assets are correctly stated.
b. Understated and assets are overstated.
c. Overstated and assets are overstated.
d. Understated and assets are understated.
a. Understated and assets are correctly stated.
- Which of the following would cause income to be overstated in the period of occurrence?
a. Overestimating bad debt expense
b. Understating beginning inventory
c. Overstated purchases
d. Understated ending inventory
b. Understating beginning inventory
- Failure to record the expired amount of prepaid rent expense would not
a. Understate expense
b. Overstate net income
c. Overstate owners’ equity
d. Understate liabilities
d. Understate liabilities
- Failure to record depreciation at year-end results in
a Understated income
b. Understated assets
c. Overstated expenses
d. Overstated assets
d. Overstated assets
- Failure to record accrued salaries at year-end results in
Overstated retained earnings
Overstated assets
Overstated liabilities
Understated retained earnings
A. Overstated retained earnings
- Which of the following is a counterbalancing error?
a. Understated depletion expense
b. Bond premium under-amortized
c. Prepaid expense adjusted incorrectly
d. Overstated depreciation expense
c. Prepaid expense adjusted incorrectly
- Which error will not self-correct next year?
a. Accrued expense not recognized at year-end
b. Accrued revenue not recognized at year-end
c. Depreciation expense overstated for the year
d. Prepaid expense not recognized at year-end
c. Depreciation expense overstated for the year
- At year-end, an entity ordered merchandise for resale. The merchandise was shipped fo.b. shipping point at year-end and the goods arrived early next year. The entity did not record the purchase in the current year and did not include the goods in ending inventory. The effects on the financial statements for the current year were
a. Income and owners’ equity were correct, liabilities were incorrect, assets were correct.
b. Income and owners’ equity were correct, assets and liabilities were incorrect.
c. Income, assets, liabilities and owners’ equity were correct.
d. Income, assets, liabilities and owners’ equity were incorrect.
b. Income and owners’ equity were correct, assets and liabilities were incorrect.
- Which of the following should not be reported retroactively?
a. Use of an unacceptable accounting principle and changing to an acceptable accounting principle.
b. Correction of an overstatement of ending inventory made in prior year
c. Use of an unrealistic accounting estimate and changing to a realistic estimate
d. Change from a good faith but erroneous estimate to a new estimate
d. Change from a good faith but erroneous estimate to a new estimate
- At the end of the current year, special insurance costs, incurred but unpaid, were not recorded. If these insurance costs were related to work in process, what is the effect of the omission on accrued liabilities and retained earnings, respectively in the current year-end statement of financial position?
a. No effect and No effect
b. No effect and Overstated
c. Understated and No effect
d. Understated and Overstated
c. Understated and No effect
- Which of the following errors could result in an overstatement of both current assets and shareholders’ equity?
a. An understatement of accrued sales commissions
b. Noncurrent note receivable principal is misclassified as current asset
c. Annual depreciation on manufacturing machinery is understated
d. Holiday pay expense for adınınistrative employees is misclassified as manufacturing overhead
d. Holiday pay expense for adınınistrative employees is misclassified as manufacturing overhead
- At the end of the current year, an entity failed to accrue sales commissions during the current year but paid in the next year. The error was not repeated in the next year. What was the effect of the error on current year-end working capital and retained earnings, respectively?
a. Overstated and Overstated
b. No effect and Overstated
c. No effect and No effect
d. Overstated and No effect
a. Overstated and Overstated
