kieso 14e tb-ifrs error p1

8/13/2019 Kieso 14e TB-IfRS Error P1

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CHAPTER 22

ACCOUNTING CHANGES AND ERROR ANALYSIS

TRUE-FALSE ConceptualAns e! No" Desc!#pt#on

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 polic .F !. Reporting cumulative effect of change in polic .T ". #isclosure re$uirements for a change in polic .T %. &ndirect effect of an accounting change.F '. #irect effects of a change in accounting polic .T (. Accounting for changes and new &FR).F 1*. #isclosure re$uirements for voluntar and mandated changes.F 11. &mpracticalit e+eption under ,.).-AA .T 12. Retrospective application impracticalit .F 13. Reporting changes in accounting estimates.T 14. Change in principle vs. change in estimate.F 1!. Accounting for change in depreciation method.F 1". Accounting error vs. change in estimate.T 1%. Accounting for corrections of errors.T 1'. /ew principle created 0 FA) standard.F 1(. alance sheet errors.F 2*. #efinition of counter0alancing errors.T 21. Accounting for counter0alancing errors.T 22. Correcting entries for noncounter0alancing errors.T 23. &ncome statement classification error effect on net income.F 24. Accounding for changes in estimates.T 2!. /on counter0alancing errors definition.

$ULTIPLE CHOICE ConceptualAns e! No" Desc!#pt#on

0 2". Accounting changes and consistenc concept.c 2%. &dentification of an accounting changes.0 2'. E+planation for &A) accounting changes categories.0 2(. Reporting changes in accounting policies.0 3*. &dentif changes in accounting polic .c 31. &dentif a non retrospective change.d 32. &dentif a change in accounting polic .a 33. Entr to record a change in depreciation methods.c 34. #isclosures re$uired for a change in depreciation methods.0 3!. Reason &A) permits change in accounting polic .0 3". -uidance in the selection of an accounting polic .c 3%. Change from percentage of completion to Cost recover .


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Test %an& 'o! Inte!(e)#ate Account#n*+ IFRS E)#t#on

d 3'. #isclosures re$uired for a change from average cost to F&F .

$ULTIPLE CHOICE Conceptual ,cont"Ans e! No" Desc!#pt#on

0 3(. Change from average cost to F&F .c 4*. Change in accounting estimate.a 41. Change in accounting estimate.0 42. &dentif a change in accounting estimate.0 43. Change in accounting estimate.c 44. &dentif a change in accounting estimate.a 4!. Reason for &A) s treatment of changes in estimates.c 4". &A) guidelines for changes in accounting polic .c 4%. &dentif errors that overstate net income.d 4'. &dentification of a change in accounting estimate.c 4(. &dentif a correction of an error.a !*. &A) assessment of proposed standard s merits.d !1. &FR) accounting for direct and indirect effects.0 !2. &dentif num0er of ear of comparative data.0 !3. &dentification of counter0alancing errors.c !4. &mpact of failure to record purchase and count ending inventor .c !!. &mpact of failure to record purchase and count ending inventor .

$ULTIPLE CHOICE Co(putat#onalAns e! No" Desc!#pt#on

0 !". Calculate cumulative effect of a change in depreciation method.0 !%. Calculate cumulative effect of a change in depreciation method.c !'. Calculate net income with change in accounting polic with ta+ effects.d !(. Calculate cumulative effect of accounting change.c "*. Calculate depreciation e+pense after change in accounting polic .d "1. Calculate cumulative effect of a change on retained earnings.0 "2. Calculate cumulative effect of a change on retained earnings.c "3. Compute depreciation e+pense after a change in depreciation methods.0 "4. Calculate cumulative effect of a change in inventor methods.d "!. 5ournal entr to record change in accounting polic .d "". 5ournal entr to record change in accounting polic .c "%. Calculate indirect effect amount of change in accounting polic .c "'. Calculate net income after a change to 6&F method.a "(. Calculate net income with change from F&F to 6&F .0 %*. Calculate depreciation after a change in estimate.a %1. Calculate net income with change in an accounting estimate.a %2. #etermine depreciation e+pense after a change in estimated life.d %3. Calculate depreciation after a change in estimate.d %4. Entr to record correction of an error.d %!. Calculate depreciation after correction of an error.c %". 5ournal entr to record correction of an error.a %%. Compute effect of errors on income 0efore ta+es.c %'. Compute effect of errors on retained earnings.d %(. Calculate effect of errors on net income.c '*. Calculate effect of errors on wor7ing capital.c '1. Calculate effect of errors on retained earnings.

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Accounting Changes and Error Anal sis

a '2. Effect of errors on income and retained earnings.

$ULTIPLE CHOICE Co(putat#onal ,cont"Ans e! No" Desc!#pt#on

a '3. Calculate effect of errors on net income.0 '4. Calculate effect of errors on retained earnings.c '!. Calculate effect of errors on wor7ing capital.d '". #etermine cumulative effect of error on income statement.c '%. #etermine the understatement of retained earnings.a ''. Calculate effect of error on net income.c '(. Compute effect of error on retained earnings.

$ULTIPLE CHOICE CPA A)apte)Ans e! No" Desc!#pt#on

0 (*. &dentif a change in accounting polic .c (1. Cumulative effect of a change from average cost to F&F .a (2. Reporting a change to F&F from average cost.a (3. alance of accumulated depreciation after a change in estimate.0 (4. #etermine carr ing value of a patent with a change in estimate.d (!. Reporting ro alt income when amount reali8ed differs from estimate.0 (". #epreciation e+pense to 0e recorded following an error.c (%. &mpact of failure to accrue insurance costs.a ('. Retained earnings 0alance with multiple errors.

E.ERCISESIte( Desc!#pt#on

E22 (( 9atching accounting changes to situations.E22 1** :ow changes or corrections are recogni8ed.E22 1*1 9atching disclosures to situations.E22 1*2 Change in accounting polic .E22 1*3 Change in estimate; corrections of errors.E22 1*4 Changes in depreciation methods; estimates.E22 1*! /oncounter0alancing error.E22 1*" Effects of errors.E22 1*% Effects of errors.

PRO%LE$SIte( Desc!#pt#on

22 1*' Accounting for changes and error corrections.22 1*( Corrections of errors.22 11* Error corrections and ad


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> ro0lem

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TRUE-FALSE Conceptual

1. A change in accounting polic is a change that occurs as the result of new information oradditional e+perience.

2. Errors in financial statements result from mathematical mista7es or oversight or misuse offacts that e+isted when preparing the financial statements.

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

4. Retrospective application refers to the application of a different accounting polic to recastpreviousl issued financial statements?as if the new polic had alwa s 0een used.

!. @hen a compan changes an accounting polic ; it should report the change 0 reportingthe cumulative effect of the change in the current ear s income statement.

". ne of the disclosure re$uirements for a change in accounting polic is to show thecumulative effect of the change on retained earnings as of the 0eginning of the earliestperiod presented.

%. An indirect effect of an accounting change is an change to current or future cash flows ofa compan that result from ma7ing a change in accounting polic that is appliedretrospectivel .

'. The &)A is silent on the application of the direct effects of a change in accounting polic .

(. The new &FR) on financial instruments will 0e su0


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$ULTIPLE CHOICE Conceptual

2". Accounting changes are often made and the monetar impact is reflected in the financialstatements of a compan even though; in theor ; this ma 0e a violation of the accountingconcept of

a. materialit .0. consistenc .c. prudence.d. o0


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33. A compan changes from straight line to an accelerated method of calculatingdepreciation; which will 0e similar to the method used for ta+ purposes. The entr torecord this change should include aa. credit to Accumulated #epreciation.0. de0it to Retained Earnings in the amount of the difference on prior ears.c. de0it to #eferred Ta+ Asset.d. credit to #eferred Ta+ 6ia0ilit .

34. @hich of the following disclosures is re$uired for a change from sum of the ears digits tostraight lineBa. The cumulative effect on prior ears; net of ta+; in the current retained earnings

statement0. Restatement of prior ears income statementsc. Recomputation of current and future ears depreciationd. All of these are re$uired.

3!. @hich of the following would 0e a reason where &A) would permit companies to changeaccounting polic Ba. The change would allow the compan to present a more favora0le profit picture.0. The change would result in the financial statements providing more relia0le and

relevant information a0out a compan s financial position; financial performance; andcash flows.

c. The change is made 0 the internal auditor.d. The change will 0e long term.

3". &f a particular transaction is not specificall addressed 0 &FR); where should anaccountant turn to find a hierarch of guidance to 0e consicered in the selection of anaccounting polic Ba. accounting standards from other countries0. &A) 'c. the compan s 0oard of directorsd. the compan s e+ternal auditors

3%. A compan changes from percentage of completion to cost recover ; which is the methodused for ta+ purposes. The entr to record this change should include aa. de0it to Construction in rocess.0. de0it to 6oss on 6ong term Contracts in the amount of the difference on prior ears;

net of ta+.c. de0it to Retained Earnings in the amount of the difference on prior ears; net of ta+.d. credit to #eferred Ta+ 6ia0ilit .

3'. @hich of the following disclosures is not re$uired for a change from average cost toF&F Ba. asic and diluted earnings per share for the current period and each prior period

presented0. The nature of the change in accounting policc. The amount of the ad


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3(. )tone Compan changed its method of pricing inventories from average cost to F&F .@hat t pe of accounting change does this representBa. A change in accounting estimate for which the financial statements for prior periods

included for comparative purposes should 0e presented as previousl reported.0. A change in accounting polic for which the financial statements for prior periods

included for comparative purposes should 0e presented as previousl reported.c. A change in accounting estimate for which the financial statements for prior periods

included for comparative purposes should 0e restated.d. A change in accounting polic for which the financial statements for prior periods

included for comparative purposes should 0e restated.

4*. @hich t pe of accounting change should alwa s 0e accounted for in current and futureperiodsBa. Change in accounting polic0. Change in reporting entitc. Change in accounting estimated. Correction of an error

41. @hich of the following is are the proper time period s to record the effects of a changein accounting estimateBa. Current period and prospectivel0. Current period and retrospectivelc. Retrospectivel onld. Current period onl

42. @hen a compan decides to switch from the dou0le declining 0alance method to thestraight line method; this change should 0e handled as aa. change in accounting polic .0. change in accounting estimate.c. prior period ad


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4!. @h does &A) prohi0it retrospective treatment of changes in accounting estimatesBa. The &A) view changes in estimates as normal recurring corrections and ad


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!1 @hich of the following is true regarding whether &FR) specificall addresses theaccounting and reporting for effects of changes in accounting policiesB

#irect effects &ndirect effectsa. IE) IE)0. / /c. / IE)d. IE) /

!2 ,nder &FR); when a compan prepares financial statements on a new 0asis; how manears of comparative data are reportedB

a. ne0. Twoc. Threed. Five

!3. Counter0alancing errors do not includea. errors that correct themselves in two ears.0. errors that correct themselves in three ears.c. an understatement of purchases.d. an overstatement of unearned revenue.

!4. A compan using a perpetual inventor s stem neglected to record a purchase ofmerchandise on account at ear end. This merchandise was omitted from the ear endph sical count. :ow will these errors affect assets; lia0ilities; and e$uit at ear end andnet income for the earB

Assets 6ia0ilities E$uit /et &ncomea. /o effect ,nderstate verstate verstate.0. /o effect verstate ,nderstate ,nderstate.c. ,nderstate ,nderstate /o effect /o effect.

d. ,nderstate /o effect ,nderstate ,nderstate.!!. &f; at the end of a period; a compan erroneousl e+cluded some goods from its ending

inventor and also erroneousl did not record the purchase of these goods in itsaccounting records; these errors would causea. the ending inventor and retained earnings to 0e understated.0. the ending inventor ; cost of goods sold; and retained earnings to 0e understated.c. no effect on net income; wor7ing capital; and retained earnings.d. cost of goods sold and net income to 0e understated.

$ult#ple C>o#ce Ans e!s Conceptual

Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans"2". 0 31. c 3". 0 41. a 4". c !1. d2%. c 32. d 3%. c 42. 0 4%. c !2. 02'. 0 33. a 3'. d 43. 0 4'. d !3. 02(. 0 34. c 3(. d 44. c 4(. c !4. c3*. 0 3!. 0 4*. c 4!. a !*. a !!. c

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$ULTIPLE CHOICE Co(putat#onal

!". n 5anuar 1; 2**(; /eal Corporation ac$uired e$uipment at a cost of K!4*;***. /ealadopted the sum of the ears digits method of depreciation for this e$uipment and had0een recording depreciation over an estimated life of eight ears; with no residual value.

At the 0eginning of 2*12; a decision was made to change to the straight line method ofdepreciation for this e$uipment. The depreciation e+pense for 2*12 would 0ea. K2';12!.0. K4!;***.c. K"%;!**.d. K1*';***.

!%. n 5anuar 1; 2**(; Lnapp Corporation ac$uired machiner at a cost of K2!*;***. Lnappadopted the dou0le declining 0alance method of depreciation for this machiner and had0een recording depreciation over an estimated useful life of ten ears; with no residualvalue. At the 0eginning of 2*12; a decision was made to change to the straight linemethod of depreciation for the machiner . The depreciation e+pense for 2*12 would 0e

a. K12;'**.0. K1';2'".c. K2!;***.d. K3!;%14.

!'. n 5anuar 1; 2**(; iper Co.; purchased a machine its onl deprecia0le asset forK3**;***. The machine has a five ear life; and no salvage value. )um of the earsdigits depreciation has 0een used for financial statement reporting and the electivestraight line method for income ta+ reporting. Effective 5anuar 1; 2*12; for financialstatement reporting; iper decided to change to the straight line method for depreciationof the machine. Assume that iper can


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!(. Nentura is su0


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"4. n #ecem0er 31; 2*11 #ean Compan changed its method of accounting for inventorfrom the average cost method to the F&F method. This change caused the 2*110eginning inventor to increase 0 K42*;***. The cumulative effect of this accountingchange to 0e reported for the ear ended 12H31H11; assuming a 4*M ta+ rate; isa. K42*;***.0. K2!2;***.c. K1"';***.d. K*.

"!. )un construction compan decided at the 0eginning of 2*12 to change from the costrecover method to the percentage of completion method for financial reporting purposes.The compan will continue to use the cost recover method for ta+ purposes.For earsprior to 2*12; preta+ income under the two methods was as follows= percentage ofcompletion O12*;***; and cost recover O'*;***. The ta+ rate is 3!M. sun s 2*12


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ased on the a0ove information; a change to the average cost method in 2*11 wouldresult in net income for 2*11 of a. K1;12*;***.0. K1;*'*;***.c. K1;**4;***.d. K1;***;***.

"(. 6anier Compan 0egan operations on 5anuar 1; 2*1*; and uses the F&F method incosting its raw material inventor . 9anagement is contemplating a change to the averagecost method and is interested in determining what effect such a change will have on netincome. Accordingl ; the following information has 0een developed=

Final &nventor 2*1* 2*11F&F K32*;*** K3"*;***

Average cost 24*;*** 3**;***/et &ncome computed under the F&F method !**;*** "**;***

ased upon the a0ove information; a change to the average cost method in 2*11 wouldresult in net income for 2*11 of

a. K!4*;***.0. K"**;***.c. K"2*;***.d. K""*;***.

%*. E$uipment was purchased at the 0eginning of 2**( for K2*4;***. At the time of itspurchase; the e$uipment was estimated to have a useful life of si+ ears and a residualvalue of K24;***. The e$uipment was depreciated using the straight line method ofdepreciation through 2*11. At the 0eginning of 2*12; the estimate of useful life wasrevised to a total life of eight ears and the e+pected residual value was changed toK1!;***. The amount to 0e recorded for depreciation for 2*12; reflecting these changes inestimates; is

a. K12;3%!.0. K1(;'**.c. K22;'**.d. K23;"2!.

,se the following information for $uestions %1 and %2.

)wift Compan purchased a machine on 5anuar 1; 2**(; for K3**;***. At the date ofac$uisition; the machine had an estimated useful life of si+ ears with no residual value. Themachine is 0eing depreciated on a straight line 0asis. n 5anuar 1; 2*12; )wift determined; as aresult of additional information; that the machine had an estimated useful life of eight ears fromthe date of ac$uisition with no residual value. An accounting change was made in 2*12 to reflectthis additional information.

%1. Assume that the direct effects of this change are limited to the effect on depreciation andthe related ta+ provision; and that the income ta+ rate was 3*M in 2**(; 2*1*; 2*11; and2*12. @hat should 0e reported in )wift s income statement for the ear ended #ecem0er31; 2*12; as the cumulative effect on prior ears of changing the estimated useful life ofthe machineBa. K*0. K2*;***c. K3*;***d. K1*!;***

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%2. @hat is the amount of depreciation e+pense on this machine that should 0e charged in)wift s income statement for the ear ended #ecem0er 31; 2*12Ba. K3*;***0. K3%;!**c. K"*;***d. K%!;***

%3. rittan Compan purchased a computer s stem for O(4;2!* on 5anuar 1; 2*11. it wasdepreciated 0ased on a % ear life and an O1(;*** residual value. n 5anuar1;2*13; rittan revised these estimates to a total useful life of 4 ears and a residualvalue of O1*;***. rittan s entr to record 2*13 depreciation e+pense will inclide de0it to#epreciation E+pense for=a. O%!;2!*0. O%2;%!*c. O1(;***d. O31;3%!

,se the following information for $uestions %4 and %!.

&n 5anuar 2*12; 9arcus 6td. has installation costs of O(;*** on new machiner that werecharged to Repair E+pense. ther costs of this machiner of O3*;*** were correctl recordedand have 0een depreciated using the straight line method with an estimated life of 1* ears andno residual value. At #ecem0er 31;2*12; 9arcus decides that the machiner ha a remaininguseful life of 1! ears; starting with 5anuar 1;2*12

%4. &f the 0oo7 have not 0een closed for 2*12 and depreciation e+pense has not et 0eenrecorded for 2*12; the entr that marcus ma7es in 2*12 to correct for the error ofe+pensing installation costs on the machiner ac$uired in 5anuar ; 2*11; will include=a. a de0it to Retained Earnings for O(;***0. a credit to Retained Earnings for O(;***.

c. a de0it to Retained Earnings for O';1**.d. a credit to Retained Earnings for O';1**.

%!. &f the 0oo7 have not 0een closed for 2*12 and depreciation e+pense has not et 0eenrecorded for 2*12; the entr that marcus ma7es in 2*12 to record depreciation on themachiner ac$uired in 5anuar ; 2*11; will include=a. a de0it to #epreciation E+pense for O2;"**0. a credit to Accumulated #epreciation for O(**.c. a de0it to #epreciation E+pense for O3;(**d. a credit to #epreciation E+pense for O2;34*

%". &n 2*12; Lrasn Corporation discovered that e$uipment purchased on 5anuar 1;2*1*; for

P!2;!** was e+pensed at that time. The e$uipment should have 0een depreciated over !ears; with no residual value. The effective ta+ rate is 3*M.Lrasn s 2*12


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,se the following information for $uestions %% and %'.

Armstrong &nc. is a calendar ear corporation. &ts financial statements for the ears ended12H31H1* and 12H31H11 contained the following errors=

2*1* 2*11

Ending inventor K1!;*** overstatement K24;*** understatement#epreciation e+pense ";*** understatement 12;*** overstatement

%%. Assume that the 2*1* errors were not corrected and that no errors occurred in 2**(. what amount will 2*1* income 0efore income ta+es 0e overstated or understatedBa. K21;*** overstatement0. K(;*** overstatementc. K21;*** understatementd. K(;*** understatement

%'. Assume that no correcting entries were made at 12H31H1*; or 12H31H11. &gnoring incometa+es; 0 how much will retained earnings at 12H31H11 0e overstated or understatedB

a. K24;*** overstatement0. K21;*** overstatementc. K3*;*** understatementd. K(;*** understatement

,se the following information for $uestions %( through '1.

6angle Compan s #ecem0er 31 ear end financial statements contained the following errors= #ec. 31; 2*1* #ec. 31; 2*11

Ending inventor K%;!** understated K11;*** overstated#epreciation e+pense 2;*** understated

An insurance premium of K1';*** was prepaid in 2*1* covering the ears 2*1*; 2*11; and 2*12.The prepa ment was recorded with a de0it to insurance e+pense. &n addition; on #ecem0er 31;2*11; full depreciated machiner was sold for K(;!** cash; 0ut the sale was not recorded until2*12. There were no other errors during 2*11 or 2*12 and no corrections have 0een made foran of the errors. &gnore income ta+ considerations.

%(. @hat is the total net effect of the errors on 6angle s 2*11 net incomeBa. /et income understated 0 K14;!**.0. /et income overstated 0 K%;!**.c. /et income overstated 0 K13;***.d. /et income overstated 0 K1!;***.

'*. @hat is the total net effect of the errors on the amount of 6angle s wor7ing capital at#ecem0er 31; 2*11Ba. @or7ing capital overstated 0 K!;***0. @or7ing capital overstated 0 K1;!**c. @or7ing capital understated 0 K4;!**d. @or7ing capital understated 0 K12;***

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'1. @hat is the total effect of the errors on the 0alance of 6angle s retained earnings at#ecem0er 31; 2*11Ba. Retained earnings understated 0 K1*;***0. Retained earnings understated 0 K4;!**c. Retained earnings understated 0 K2;!**d. Retained earnings overstated 0 K3;!**

'2. Accrued salaries pa a0le of K!1;*** were not recorded at #ecem0er 31; 2*1*. fficesupplies on hand of K24;*** at #ecem0er 31; 2*11 were erroneousl treated as e+penseinstead of supplies inventor . /either of these errors was discovered nor corrected. Theeffect of these two errors would causea. 2*11 net income to 0e understated K%!;*** and #ecem0er 31; 2*11 retained

earnings to 0e understated K24;***.0. 2*1* net income and #ecem0er 31; 2*1* retained earnings to 0e understated

K!1;*** each.c. 2*1* net income to 0e overstated K2%;*** and 2*11 net income to 0e understated

K24;***.d. 2*11 net income and #ecem0er 31; 2*11 retained earnings to 0e understated

K24;*** each.

,se the following information for $uestions '3 through '!.

ishop Co. 0egan operations on 5anuar 1; 2*1*. Financial statements for 2*1* and 2*11 contained the following errors=

#ec. 31; 2*1* #ec. 31; 2*11Ending inventor K132;*** too high K1!";*** too low#epreciation e+pense '4;*** too high ?&nsurance e+pense "*;*** too low "*;*** too high

repaid insurance "*;*** too high ?

&n addition; on #ecem0er 31; 2*11 full depreciated e$uipment was sold for K2';'**; 0ut the salewas not recorded until 2*12. /o corrections have 0een made for an of the errors. &gnore incometa+ considerations.

'3. The total effect of the errors on ishop s 2*11 net income isa. understated 0 K3%";'**.0. understated 0 K244;'**.c. overstated 0 K11!;2**.d. overstated 0 K1((;2**.

'4. The total effect of the errors on the 0alance of ishop s retained earnings at #ecem0er31; 2*11 is understated 0a. K32';'**.0. K2"';'**.c. K1'4;'**.d. K13";'**.

'!. The total effect of the errors on the amount of ishop s wor7ing capital at #ecem0er 31;2*11 is understated 0a. K4**;'**.0. K31";'**.c. K1'4;'**.d. K124;'**.

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,se the following information for $uestions '" and '%.

6in7 Co. purchased machiner that cost K'1*;*** on 5anuar 4; 2**(. The entire cost wasrecorded as an e+pense. The machiner has a nine ear life and a K!4;*** residual value. Theerror was discovered on #ecem0er 2*; 2*11. &gnore income ta+ considerations.

'". 6in7 s income statement for the ear ended #ecem0er 31; 2*11; should show thecumulative effect of this error in the amount of a. K%2";***.0. K"42;***.c. K!!';***.d. K*.

'%. efore the correction was made; and 0efore the 0oo7s were closed on #ecem0er 31;2*11; retained earnings was understated 0a. K'1*;***.0. K%2";***.c. K"42;***.d. K!!';***.

,se the following information for $uestions '' and '(.

Ernst Compan purchased e$uipment that cost K%!*;*** on 5anuar 1; 2*1*. The entire costwas recorded as an e+pense. The e$uipment had a nine ear life and a K3*;*** residual value.Ernst uses the straight line method to account for depreciation e+pense. The error wasdiscovered on #ecem0er 1*; 2*12. Ernst is su0o#ce Ans e!s Co(putat#onalIte( Ans" Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans"

!". 0 "1. d "". d %1. a %". c '1. c '". d!%. 0 "2. 0 "%. c %2. a %%. a '2. a '%. c!'. c "3. c "'. c %3. d %'. c '3. a ''. a!(. d "4. 0 "(. a %4. d %(. d '4. 0 '(. c"*. c "!. d %*. 0 %!. d '*. c '!. c

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$ULTIPLE CHOICE CPA A)apte)

(*. @hich of the following should 0e reported as a prior period ad


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(!. #uring 2*1*; a te+t0oo7 written 0 9ercer Co. personnel was sold to Roar7 u0lishing;&nc.; for ro alties of 1*M on sales. Ro alties are receiva0le semiannuall on 9arch 31; forsales in 5ul through #ecem0er of the prior ear; and on )eptem0er 3*; for sales in5anuar through 5une of the same ear.

Ro alt income of K1*';*** was accrued at 12H31H1* for the period 5ul #ecem0er

2*1*. Ro alt income of K12*;*** was received on 3H31H11; and K1!";*** on (H3*H11. 9ercer learned from Roar7 that sales su0


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$ult#ple C>o#ce Ans e!s CPA A)apte)Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans" Ite( Ans"

(*. 0 (2. a (4. 0 (". 0 ('. a(1. c (3. a (!. d (%. c

DERI0ATIONS Co(putat#onalNo" Ans e! De!#5at#on

!". 0 Q ' % " 36] $540,000 = $ 315,000 (AD)($540,000 - $ 315,000) 5 = $ 45,000.

!%. 0 SK2!*;*** Q K2!*;*** .2 K2**;*** .2 K1"*;*** .2 UV 7 = $18,286.

!'. c Q !H1! 4H1! 3H1! K3**;***U > K24*;*** A#K3**;*** K24*;*** > K"*;*** N

QK2!*;*** K"*;*** W 2 U X 1 .3 > K1!4;***.

!(. d K*; /o cumulative effectG handle prospectivel .

"*. c QK"3*;*** K1'*;*** K1!*;*** U W 4 > K%!;***.

"1. d Q K'**;*** K(!*;*** K4%!;*** K"2!;*** U X 1 .4* > K3(*;***.

"2. 0 K*; /o cumulative effectG handle prospectivel .

"3. c S K"**;*** Q K"**;*** W 1* X 3UV W % X 2 > K12*;***.

"4. 0 K42*;*** X 1 .4* > K2!2;***.

"!. d Q O12*;*** O'*;*** X .3!U > O14;*** cr

"". d P1;1**;*** X .3! > P3'!;***

"%. c O144;*** O114;*** X .*1! > O4!*

"'. c K1;*'*;*** K%12;*** K"3";*** > K1;**4;***.

"(. a K"**;*** K3"*;*** K3**;*** > K!4*;***.

%*. 0 K2*4;*** SQ K2*4;*** K24;*** W "U X 3V > K114;***

K114;*** K1!;*** W ' 3 > K1(;'**.%1. a K*; no cumulative effect; handle prospectivel change in estimate .

%2. a K3**;*** W " X 3 > K1!*;***K1!*;*** W ! > K3*;***.

%3. d Q O(4;2!* O1(;*** W %U X 2 > O21;!**Q O(4;2!* O21;!** O1*;***U W 4 2 > O31;3%!

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DERI0ATIONS Co(putat#onal ,cont"No" Ans e! De!#5at#on%4. d QO(;*** O(;*** W 1* U > O';1** cr

%!. d O3(;*** O3(;*** W 1* U > O3!;1**O3!;1** W 1! > O2;34*

%". c QP!2;!** P!2;!** X 2H! U > P31;!**QP31;!** X 1 .3* U > P22;*!*

%%. a K1!;*** K";*** > K21;*** overstatement.

%'. c K24;*** K";*** > K3*;*** understatement.

%(. d K%;!** o K11;*** o K";*** o K(;!** u > K1!;*** o .

'*. c K11;*** o K";*** u K(;!** u > K4;!** u .

'1. c K2;*** o K11;*** o K";*** u K(;!** u > K2;!** u .

'2. a 2*11 /& > K!1;*** u K24;*** u > K%!;*** u .2*11 RE > K24;*** u QThe 2*1* K!1;*** o is offset 0 2*11 K!1;*** u U.

'3. a K132;*** u K1!";*** u K"*;*** u K2';'** u > K3%";'** u .

'4. 0 K1!";*** u K'4;*** u K"*;*** o K"*;*** u K2';'** u> K2"';'** u .

'!. c K1!";*** u K2';'** u > K1'4;'** u .

'". d CE > K*; correction of error.

'%. c K'1*;*** $810,000 $54,000

29

> K"42;***

''. a K%!*;*** Q K%!*;*** K3*;*** W (U X 1 .4* > K4*2;***.

'(. c K%!*;*** Q K%!*;*** K3*;*** W ( X 2U > K!(*;***.K!(*;*** X 1 .4* > K3!4;***.

DERI0ATIONS CPA A)apte)No" Ans e! De!#5at#on

(*. 0 Conceptual.

(1. c K1;!**;*** X 1 .3 > K1;*!*;***.

(2. a K'**;*** X 1 .3 > K!"*;***.

(3. a K%(2;*** X 3H' > K2(%;***K2(%;*** Q K%(2;*** K2(%;*** K%2;*** X 1H3U > K43';***.

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DERI0ATIONS CPA A)apte) ,cont"No" Ans e! De!#5at#on

(4. 0 K!(!;*** X 3H1! > K11(;***K!(!;*** K11(;*** Q K!(!;*** K11(;*** X 1H%U > K4*';***.

(!. d K12*;*** K1*';*** K1!";*** K1;"2*;*** X .1* > K33*;***.

(". 0 K!**;*** W ! > K1**;***.

(%. c Conceptual.

('. a K!4;*** u K13!;*** u K4!;*** o > K144;*** u .

E.ERCISES

E?" 22-


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E?" 22-


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E?" 22-6=6 ?9atching disclosures to situations.

&n the 0lan7 to the left of each $uestion; fill in the letter from the following list which 0est descri0esthe presentation of the item on the financial statements of :elton Corporation for 2*11.

a. Change in estimate0. rior period ad


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E?" 22-6=2 ?Change in accounting polic .

&n 2*12; Fischer Corporation changed its method of inventor pricing from average cost to F&F ./et income computed on an average cost as compared to a F&F 0asis for the four earsinvolved is= &gnore income ta+es.

ANERA-E F&F

2**( K%';2** K'3;%**2*1* '4;!** '';1**2*11 '%;*** (1;4**2*12 (2;!** (4;%**

Inst!uct#onsa &ndicate the net income that would 0e shown on comparative financial statements issued at

12H31H12 for each of the four ears; assuming that the compan changed to the F&Fmethod in 2*12.

0 Assuming that the compan switched from the F&F to the average cost method; whatwould 0e the net income reported on comparative financial statements issued at 12H31H12for 2**(; 2*1*; and 2*11B

Solut#on 22-6=2

a 2**(; K'3;%**G 2*1*; K'';1**G 2*11; K(1;4**G 2*12; K(4;%**; Retrospective restatement .

0 2**(; K%';2**G 2*1*; K'4;!**G 2*11; K'%;***G 2*12; K(2;!**; Retrospective restatement .

E?" 22-6=1 ?Change in estimate and correction of errors.

#iscuss the accounting procedures for and illustrate the following=

a Change in estimate0 Correction of an error

Solut#on 22-6=1

a Accounting estimates will change as new events occur; as more e+perience is ac$uired; ornew information is o0tained. E+amples of changes in estimate are= a collecti0ilit ofreceiva0les; 0 inventor o0solescence; c estimated lives or residual values; and dwarrant costs. Changes in estimates are handled prospectivel G that is; in current andfuture periods. /o restatement of previous financial statements is made.

0 E+amples of accounting errors are= a a change from an accounting polic that is notgenerall accepted to an accounting polic that is accepta0le; 0 mathematical mista7es; cchanges in estimates that occur 0ecause the estimates are not made in good faith; d anoversight; e a misuse of facts; and f misclassification of an e+pense as an asset or viceversa. Corrections of errors are recorded in the ear discovered; are treated as prior periodad


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E?" 22-6=7 ?Changes in depreciation methods; estimates.

n 5anuar 1; 2**%; owell Compan purchased a 0uilding and machiner that have thefollowing useful lives; residual value; and costs.

uilding; 2! ear estimated useful life; K4;***;*** cost; K4**;*** residual value9achiner ; 1* ear estimated useful life; K!**;*** cost; no residual value

The 0uilding has 0een depreciated under the straight line method through 2*11. &n 2*12; thecompan decided to switch to the dou0le declining 0alance method of depreciation for the0uilding. owell also decided to change the total useful life of the machiner to ' ears; with aresidual value of K2!;*** at the end of that time. The machiner is depreciated using the straightline method.

Inst!uct#onsa repare the K32';***

#epreciation E+pense..................................................................... 32';*** Accumulated #epreciation? uilding...................................... 32';***

Computation of 2*12 depreciation e+pense on machiner =Cost of machiner K!**;***

Accumulated depreciationQ K!**;*** K* W 1*U X ! ears 2!*;***

oo7 value; 1H1H12 K2!*;***

2*12 #epreciation e+pense= K2!*;*** K2!;*** W ' ! > K22!;*** W 3 > K%!;***

E?" 22-6=8 ?/oncounter0alancing error.

Zuigle Co. 0ought a machine on 5anuar 1; 2**( for K'%!;***. &t had a K%!;*** estimatedresidual value and a ten ear life. An e+pense account was de0ited on the purchase date.Zuigle uses straight line depreciation. This was discovered in 2*11.

Inst!uct#onsrepare the entr or entries related to the machine for 2*11.

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Solut#on 22-6=8

9achine................................................................................................ '%!;***Retained Earnings..................................................................... %1!;***

Accumulated #epreciation 2 X K'*;*** ................................... 1"*;***

#epreciation E+pense........................................................................... '*;*** Accumulated #epreciation......................................................... '*;***

E?" 22-6=9 ?Effects of errors.

)how how the following independent errors will affect net income on the &ncome )tatement andthe stoc7holders e$uit section of the )tatement of Financial osition )F using the s m0ol

plus for overstated; minus for understated; and * 8ero for no effect. 2*12 2*13&ncome )F &ncome )F

)tatement )tatement

1. Ending inventor in 2*12 overstated.2. Failed to accrue 2*12 interest

revenue.

3. A capital e+penditure for factore$uipment useful life; ! ears waserroneousl charged to maintenancee+pense in 2*12.

2*12 2*13&ncome )F &ncome )F

)tatement )tatement

4. Failed to count office supplies on handat 12H31H12. Cash e+penditures have0een charged to an office suppliese+pense account during the ear 2*12.

!. Failed to accrue 2*12 wages.

". Ending inventor in 2*12 understated.

%. verstated 2*12 depreciatione+penseG 2*11 e+pensecorrect.

22 - 1=


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Solut#on 22-6=9 2*12 2*13&ncome )F &ncome )F

)tatement )tatement

1. Ending inventor in 2*12 overstated.

2. Failed to accrue 2*12 interest revenue.

3. A capital e+penditure for factore$uipment useful life; ! ears waserroneousl charged to maintenancee+pense in 2*12.

4. Failed to count office supplies on handat 12H31H12. Cash e+penditures have0een charged to ffice )uppliesE+pense during the ear 2*12.

!. Failed to accrue 2*12 wages.

". Ending inventor in 2*12 understated.

%. verstated 2*12 depreciation e+penseG 2*13 e+pense correct

E?" 22-6=; ?Effects of errors.5oseph Co. 0egan operations on 5anuar 1; 2*1*. Financial statements for 2*1* and 2*11contained the following errors=

#ec. 31; 2*1* #ec. 31; 2*11Ending inventor K(*;*** too high K114;*** too high#epreciation e+pense 4';*** too low ?

Accumulated depreciation 4';*** too low 4';*** too low&nsurance e+pense 42;*** too high 42;*** too low

repaid insurance 3";*** too low

&n addition; on #ecem0er 2"; 2*11 full depreciated e$uipment was sold for K!';***; 0ut the sale

was not recorded until 2*12. /o corrections have 0een made for an of the errors.Inst!uct#ons&gnoring income ta+es; show our calculation of the total effect of the errors on 2*11 net income.

22 - 16

*

*

*

*

*

*


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Solut#on 22-6=;

2*1* ending inventor K (*;***2*11 ending inventor 114;***&nsurance e+pense 42;***,nrecorded gain !';***

verstatement of 2*11 income K ';***

/ote= The error in depreciation e+pense has no effect on 2*11 income. The error in prepaidinsurance is related to the error in insurance e+pense.

PRO%LE$S

P!" 22-6=: ?Accounting for changes and error corrections.

# 7e Compan s net incomes for the past three ears are presented 0elow=

2*12 2*11 2*1*K4'*;*** K4!*;*** K3"*;***

#uring the 2*12 ear end audit; the following items come to our attention=

1. # 7e 0ought a truc7 on 5anuar 1; 2**( for K1(";*** with a K1";*** estimated residual valueand a si+ ear life. The compan de0ited an e+pense account and credited cash on thepurchase date for the entire cost of the asset. )traight line method

2. #uring 2*12; # 7e changed from the straight line method of depreciating its cement plant tothe dou0le declining 0alance method. The following computations present depreciation on0oth 0ases=

2*12 2*11 2*1*)traight line 3";*** 3";*** 3";***#ou0le declining 4";*'* !%;"** %2;***

The net income for 2*12 was computed using the dou0le declining 0alance method; on the5anuar 1; 2*12 0oo7 value; over the useful life remaining at that time. The depreciationrecorded in 2*12 was K%2;***.

3. # 7e; in reviewing its provision for uncollecti0les during 2*12; has determined that 1M is theappropriate amount of 0ad de0t e+pense to 0e charged to operations. The compan had used1H2 of 1M as its rate in 2*11 and 2*12 when the e+pense had 0een K1';*** and K12;***;respectivel . The compan recorded 0ad de0t e+pense under the new rate for 2*12. The

compan would have recorded K";*** less of 0ad de0t e+pense on #ecem0er 31; 2*12under the old rate.

Inst!uct#onsa repare in general


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P!" 22-6=: cont.

c Assume that the 0eginning retained earnings 0alance unad K33*;***.2*11= K4!*;*** K3*;*** > K42*;***.2*12= K4'*;*** K3*;*** > K4!*;***.

c Retained earnings unad


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Solut#on 22-6=

kieso 14e tb-ifrs error p1

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