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1.
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Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of
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  Materiality.
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Consistency.
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Conservatism.
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Objectivity.
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2.
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A transaction that is unusual in nature and infrequent in occurrence should be reported separately as a component of income
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After cumulative effect of accounting changes and before discontinued operations.
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Before cumulative effect of accounting changes and after discontinued operations.
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After cumulative effect of accounting changes and after discontinued operations.
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Before cumulative effect of accounting changes and before discontinued operations.
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3.
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Which of the following is NOT treated as a change in accounting principle?
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A change from LIFO to FIFO for inventory valuation
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A change to a different method of depreciation for plant assets
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A change from full-cost to successful efforts in the extractive industry
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A change from completed-contract to percentage-of-completion
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4.
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Which of the following is NOT a retrospective-type accounting change?
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Completed-contract method to the percentage-of-completion method for long-term contracts
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LIFO method to the FIFO method for inventory valuation
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Sum-of-the-years'-digits method to the straight-line method
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Full cost method to another method in the extractive industry
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5.
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Which of the following is accounted for as a change in accounting principle?
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A change in the estimated useful life of plant assets.
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A change from the cash basis of accounting to the accrual basis of accounting.
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A change from expensing immaterial expenditures to deferring and amortizing them as they become material.
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A change in inventory valuation from average cost to FIFO.
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6.
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A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change should include a
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Credit to Accumulated Depreciation.
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Debit to Retained Earnings in the amount of the difference on prior years.
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Debit to Deferred Tax Asset.
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Credit to Deferred Tax Liability.
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7.
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Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line?
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The cumulative effect on prior years, net of tax, in the current retained earnings statement
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Restatement of prior years' income statements
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Recomputation of current and future years' depreciation
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All of these are required.
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8.
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A company changes from percentage-of-completion to completed-contract, which is the method used for tax purposes. The entry to record this change should include a
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Debit to Construction in Process.
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Debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax.
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Debit to Retained Earnings in the amount of the difference on prior years, net of tax.
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Credit to Deferred Tax Liability.
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9.
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Which of the following disclosures is required for a change from LIFO to FIFO?
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The cumulative effect on prior years, net of tax, in the current retained earnings statement
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The justification for the change
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Restated prior year income statements
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All of these are required.
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10.
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Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting change does this represent?
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A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.
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A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.
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A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated.
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A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be restated.
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11.
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Which type of accounting change should always be accounted for in current and future periods?
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Change in accounting principle
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Change in reporting entity
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Change in accounting estimate
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Correction of an error
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12.
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When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a
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Change in accounting principle.
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Change in accounting estimate.
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Prior period adjustment.
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Correction of an error.
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13.
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The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should
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Continue to depreciate the building over the original 50-year life.
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Depreciate the remaining book value over the remaining life of the asset.
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Adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.
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Adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.
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14.
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Which of the following statements is correct?
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Changes in accounting principle are always handled in the current or prospective period.
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Prior statements should be restated for changes in accounting estimates.
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A change from expensing certain costs to capitalizing these costs due to a change in the period benefited, should be handled as a change in accounting estimate.
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Correction of an error related to a prior period should be considered as an adjustment to current year net income.
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15.
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Which of the following describes a change in reporting entity?
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A company acquires a subsidiary that is to be accounted for as a purchase.
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A manufacturing company expands its market from regional to nationwide.
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A company divests itself of a European branch sales office.
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Changing the companies included in combined financial statements.
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16.
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Presenting consolidated financial statements this year when statements of individual companies were presented last year is
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A correction of an error.
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An accounting change that should be reported prospectively.
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An accounting change that should be reported by restating the financial statements of all prior periods presented.
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Not an accounting change.
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17.
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An example of a correction of an error in previously issued financial statements is a change
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From the FIFO method of inventory valuation to the LIFO method.
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In the service life of plant assets, based on changes in the economic environment.
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From the cash basis of accounting to the accrual basis of accounting.
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In the tax assessment related to a prior period.
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18.
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Counterbalancing errors do NOT include
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Errors that correct themselves in two years.
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Errors that correct themselves in three years.
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An understatement of purchases.
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An overstatement of unearned revenue.
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19.
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A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year-end. This merchandise was omitted from the year-end physical count. How will these errors affect assets, liabilities, and stockholders' equity at year-end and net income for the year?
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Assets = No Effect; Liabilities = Understate; Stockholders' Equity = Overstate; and Net Income = Overstate.
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Assets = No Effect; Liabilities = Overstate; Stockholders' Equity = Understate; and Net Income = Understate.
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Assets = Understate; Liabilities = Understate; Stockholders' Equity = No effect; and Net Income = No effect.
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Assets = Understate; Liabilities = No effect; Stockholders' Equity = Understate; and Net Income = Understate.
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20.
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If, at the end of a period, a company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause
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The ending inventory and retained earnings to be understated.
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The ending inventory, cost of goods sold, and retained earnings to be understated.
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No effect on net income, working capital, and retained earnings.
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Cost of goods sold and net income to be understated.
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21.
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How should the effect of a change in accounting estimate be accounted for?
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By restating amounts reported in financial statements of prior periods.
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By reporting pro forma amounts for prior periods.
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As a prior-period adjustment to beginning retained earnings.
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In the period of change and future periods if the change affects both.
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22.
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On January 1, 2X12, Frost Corp. changed its inventory method to FIFO from LIFO for both financial and income tax reporting purposes. The change resulted in an $800,000 increase in the January 1, 2X12 inventory. Assume that the income tax rate for all years is 30%. The cumulative effect of the accounting change should be reported by Frost in its 2X12
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Retained earnings statement as a $560,000 addition to the beginning balance.
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Income statement as a $560,000 cumulative effect of accounting change.
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Retained earnings statement as an $800,000 addition to the beginning balance.
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Income statement as an $800,000 cumulative effect of accounting change.
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