Questions 5 Flashcards
According to the FASB conceptual framework, which of the following attributes would NOT be used to measure inventory? …….. a. Replacement cost ………. b. net realize value …………. c. historical cost ………… d. present value of future cash flows
d. present value of future cash flows
Under US GAAP a transaction that is unusual in nature and infrequent in occurrence should be reported separately as a component of income: a. before cumulative effect of accounting changes and before discounted operations of a segment of a business …………….. b. after cumulative effect of accounting and before discounted operations of a segment of a business ………….. c. After cumulative effect of accounting changes and after discounted operations of a segment of a business ………….. d. after discounted operations of a segment of a business.
d. after discounted operations of a segment of a business ………. An extraordinary item (a transaction that is both “unusual in nature and infrequent in occurrence”) should be reported separately as a component of income after discounted operations of a segment of a business . The cumulative effect of a change in accounting principle in shown on the retained earnings statement
How should the effect of a change in accounting estimate be accounted for? ……a. by restating amounts reported in financial statements of prior periods ………. b. by reporting pro forma amounts for prior periods …………. c. in the period of change and future periods if the change affects both ………. d. as a prior period adjustment to beginning RE
c. in the period of change and future periods if the change affects both
Foy Corp failed to accrue warranty costs of 50,000 in its December 31, Yr 1, FS. In addition, a 30,000 change from straight line to accumulated depreciation was made at the beginning of Yr 2. Both the 50,000 and the 30,000 are net of related income taxes. What amount should FOY report as prior period adjustments in Yr 2? ……..a. 50,000 ……. b. 80,000 …….. c. 30,000 ……….. d. -0-
a. 50,000 ……………………… the cumulative effect of a change in accounting principle is now shown on the RE statement as an adjustment to the beginning balance of re, assuming that the cumulative effect can be calculated.
Per US GAAP, which of the following statements is correct regarding accounting changes that result in FS that are, in effect, the statements of a different reporting entity? …..a. no restatements or adjustments are required if the changes involve the cost or equity methods of accounting for investments ……… b . no restatements or adjustments are required if the changes involve consolidated methods of accounting for subsidiaries ………c. the FS of all prior periods presented should be restated …….. d. cumulative effect adjustments should be reported as separate items on the is in the year of change.
c. the FS of all prior periods presented should be restated when there is a “change in entity” such as resulting from” 1. changing companies FS, and 2. consolidated FS vs previous individual FS
Under US GAAP, the effect of a material transaction that is infrequent in occurrence but not unusual in nature should be presented separately as a component of income from continuing operations when the transaction results in a Gain or loss ……. a. yes …. yes …………b. no ….no ………. c. yes not ……. d. no ….. yes
yes ….. yes
Under US GAAP, an extraordinary item should be reported separately on the income statement as a component of income (1) net of income taxes (2) before discontinued operations of a segment of a business ……….. a.no ……. yes ……….. b. yes ….. yes ………… c. no yes ……….. d. yes no
Yes / no
On January 2 Yr 3, to better reflect the variable use of its only machine, holly Inc elected to change its method of depreciation from SL to the unites of production method. The original cost of the machine on January 2, Yr 1, was 50,000, and its estimated life was 10 years. Holly estimates that the machines total life is 50,000 machine hours. Machine hours usage was 8,500 during Yr 2 and 3,500 during Yr 1. a. cumulative effect of a change in accounting principle of 2,000 in its income statement ………. b. adjustment to beginning RE of 2,000 …….. c. cumulative effect of a change in accounting principle of 1,400 in its IS ……….. d. none of the above
none of the above …………………. A change in the method of deprecation is now considered to the both a change in method and a change in estimate.
On November 1, Yr 1, Smith Co contracted to dispose of an industry segment. Throughout Yr 1 the segment had operating losses. These losses were expected to continue until the segment disposition. If a loss is projected on final disposition, how much of the operating losses should be included in the loss from discontinued operations reported in Smith’s Year 1 income statements? ……………….1. operating losses for the period January 1 to October 31, Year 1 …………………. 11 Operating losses for the period November 1 to December 31, year 1 …………. III. Estimated operating losses for the period Jan 1 to Feb 28, year 2. ………………. a. 1 and III only ………… b. 1 and II only …………….. c. II only ………… d. II and III only
I and II only …. The operating losses to be included in Smiths Year 1 income statement
Under US GAAP if a company is not presenting comparative FS, the correction of an error in the FS of a prior period should be reported, net of applicable income taxes, in the current: ……a. RE statement after net income but before dividends ……………………… b. IS after income from continuing operations and after extraordinary items ……………………… c. IS after income from continuing operations and before extraordinary items ………………………… d. RE statement as an adjustment of the operating balance.
RE statement as an adjustment of the operating balance
For Year 1 , Pac Co. estimated its two-year equipment warranty costs based on $ 1 00 per unit sold in Year 1 .Experience during Year 2 indicated that the estimate should have been based on $ 1 1 0 per unit. The effect of this $10 difference from the estimate is reported: ……….. a. As an accounting change requiring Year 1 financial statements to be restated ………….. b. As an accounting change, net of tax, below Year 2 income from continuing operations …………… c. In Year 2 income from continuing operations ……………. d. As a correction of an error requiring Year 1 financial statements to be restated.
Choice “c” is correct. The effect of the new estimate of warranty costs (from $100 to $110) is a change in estimate and will be reported in Year 2 income from continuing operations ………………… Rule: Changes in estimates affect only the current and subsequent periods (not prior periods and not retained
earnings).
The cumulative effect of a change in accounting estimate should be should be separately: ………… a. On the income statement above income from continuing operations …………………… b. On the retained earnings statement as an adjustment to the beginning balance …………………….. c. It should not be recorded separately on any financial statement ……………….. d. On the income statement after income from continuing operations and before extraordinary items
Choice “c” is correct. A change in estimate is handled prospectively. No cumulative effect adjustment is made and no separate line item presentation is made on any financial statement. If a material change is being made, appropriate footnote disclosure is necessary.
During the current year, Krey Co. increased the estimated quantity of copper recoverable from its mine. Krey uses the units of production depletion method. As a result of the change, which of the following should be reported in Krey’s year-end financial statements? (1) Cumulative effect of a change in accounting principal (2) Pro forma effects of retroactive application of new depletion base ,………………….. a. No No ………………. b. No Yes ………….. c. Yes No ……………. d. Yes Yes
Choice “a” is correct, No * No. This is a change in “accounting estimate,” Which affects only the current and subsequent periods (not prior periods and not retained earnings). “Cumulative effect of a change in accounting principle” is only used for changes in “accounting principle.”
