Question 1

Brockway, Inc.purchased some equipment on January 1, 2010, for $300, 000 that had a five-year useful life and no salvage value.Brockway used double-declining-balance depreciation for both financial reporting and income tax purposes.On January 1, 2012, Brockway changed to the straight-line depreciation method for this equipment and can justify the change.Brockway will continue to use double-declining balance depreciation for income tax reporting.Brockway's income tax rate is 30%.Assuming Brockway's 2012 income before depreciation and tax is $800, 000, Brockway's net income for 2012 would be

Accepted Answer

A)  $534, 800
B)  $570, 800
C)  $764, 000
D)  $800, 000E) A) and B)
F) A) and C)

Question 2

Prospective adjustments are expected to

Accepted Answer

A)  impact financial statements of only previous years
B)  impact financial statements of previous years and current years as if the accounting principle had always been used
C)  produce no impact on the financial statements of previous years
D)  impact the financial statements of the current year onlyE) A) and D)
F) B) and C)

Question 3

On January 1, 2010, Willis Company acquired equipment at a cost of $400, 000.Willis used the double-declining-balance method to depreciate the equipment with a ten-year life and no salvage value.On January 1, 2012, Willis changed to straight-line depreciation for this equipment, and the IRS accepted this change as being eligible as a change in accounting estimate with prospective treatment.Assuming an income tax rate of 30%, the restatement of January 1, 2012 retained earnings is

Accepted Answer

A)  $ 0
B)  $44, 800
C)  $52, 640
D)  $72, 100E) A) and D)
F) B) and D)

Question 4

Exceptions exist in the retrospective restatement requirements when accounting for errors under   GAAP  IFRS  I.  No  No  II.  No  Yes  III.  Yes  Yes  IV.  Yes  No \begin{array}{lll}&	ext { GAAP }&	ext { IFRS }\	ext { I. } & 	ext { No } & 	ext { No } \	ext { II. } & 	ext { No } & 	ext { Yes } \	ext { III. } & 	ext { Yes } & 	ext { Yes }\	ext { IV. } & 	ext { Yes } &	ext { No } \end{array} I.  II.  III.  IV. ​ GAAP  No  No  Yes  Yes ​ IFRS  No  Yes  Yes  No ​

Accepted Answer

A)  I
B)  II
C)  III
D)  IV E) All of the above
F) B) and C)

Question 5

Exhibit 23-4 Bonnie Company's year-end December 31, 2010, financial statements contained the following errors:
Ending inventory on December 31,2010 , was overstated by  $60,000 \$ 60,000 $60,000 .
Depre ciation expense was underst at ed by  $σ,000 \$ \sigma, 000 $σ,000 .
A two-year insurance policy for 2010 and 2011 in the amount of  $12,000 \$ 12,000 $12,000  was entirely expensed in 2010.
Investments in common stock of other companieswere sold in 2010 at a gain of  $8,000 \$ 8,000 $8,000 , but the sale was not recorded until 2011
- Refer to Exhibit 23-4.What is the effect of the above errors on 2010 net income?

Accepted Answer

A)  Net income is understated by $52, 000.
B)  Net income is overstated by $40, 000.
C)  Net income is overstated by $58, 000.
D)  Net income is overstated by $52, 000. E) C) and D)
F) A) and D)

Question 6

The accounting changes identified by current GAAP include all of the following except

Accepted Answer

A)  correction of an error
B)  change in accounting principle
C)  change in accounting estimate
D)  change in reporting entityE) B) and D)
F) All of the above

Exam 23: Accounting for Changes and Errors

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Prospective adjustments are expected to

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The accounting changes identified by current GAAP include all of the following except

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Exam 23: Accounting for Changes and Errors

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Prospective adjustments are expected to

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The accounting changes identified by current GAAP include all of the following except

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