Multiple Choice Circle the best Answer
1. Which of the following disclosures
is NOT required for a change from sum-of-the-years-digits to straight-line?
a. The cumulative effect on prior
years, net of tax, in the current income statement
b. The
justification for the change
c. Pro
forma data on income and earnings per share
d. All of the above are
required.
2. Which of the following is not
considered to be an accounting principle change under APB Opinion No. 20?
a. A change from FIFO to LIFO for
inventory valuation.
b. Using a different method of
depreciation for new plant assets.
c. A change from full-cost to
successful efforts in the extractive industry.
d. Switching from the direct write-off
to the allowance method of accounting for bad debts (note: the direct write-off
method was never acceptable in this case).
e. Both b and d.
3.
Accrued salaries payable of $8,750 were not recorded at Dec. 31, 1993. Office supplies on hand of $3,750 at Dec. 31,
1994, were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered or
corrected. The effect of these two
errors would cause
a.
1994 net income to be understated $8,750 December 31, 1994 retained earnings to
be understated $3,750.
b.
1993 net income and December 31, 1993 retained earnings to both be understated
by $8,750 each.
c. 1993 net income
to be overstated $8,750 and 1994 net income to be understated $12,500.
d.
1994 net income and December 31, 1994 retained earnings to both be understated
by $3,750 each.
4.
Counterbalancing errors do NOT include
a.
errors that correct themselves in two years.
b. errors that correct
themselves in three years.
c. an
understatement of purchases.
d. an
overstatement of unearned revenue.
-Continued on Next Page-
Accounting
changes
Osborne
Company's net income for its first three years of operations (using
straight-line depreciation method and estimating sales returns at 1% of credit
sales) are presented below:
1999 1998 1997
$160,000 $150,000 $120,000
During 1999, Osborne decided to change
from the straight-line method of depreciating its cement plant to the
double-declining balance method and change its estimate of sales returns to 2%
of credit sales, for book purposes only. The following presents information
regarding differences in pre-tax expense and contra-revenue resulting from
these changes:
1999 1998 1997
(DDB Depr. Exp. - St. line Depr Exp.) (5,000) 4,000 12,000
(Sales Returns 2% -Sales Returns 1%) 25,000 N/A N/A
Required:
a. Assuming an income tax rate of 30% for
all periods, prepare the necessary 1999 entry to record the past cumulative
effect of the depreciation change. (4pts)
Past cumulative effect of acct. chg. 11,200
Deferred taxes 4,800
Accumulated depreciation 16,000
Complete the following comparative
income statement data for the years 1999 and 1998 in accordance with generally
accepted accounting principles starting with income before cumulative effect of
accounting changes. (8 pts)
1999 1998
Income before cumulative effect of
accounting changes $146,000 $150,000
Cumulative effect on prior years of
retroactive
application of new depreciation method, net of tax (11,200) ______0
Net income $134,800 $150,000
Pro-forma Net Income (assuming retroactive
application
of new depreciation method): $146,000 $147,200
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