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ACCT557 week 5 quiz




Question;1. On December 31, 2013, Gifts Galore, Inc. appropriately changed its inventory valuation method from weighted-average cost to FIFO method for financial statement and income tax purposes. The change will result in a $3,600,000 increase in the beginning inventory at January 1, 2013. Assume a 35% income tax rate. The cumulative effect of this accounting change on beginning retained earnings is (Points: 5)a) $0.b) $1,260,000.c) $3,600,000.d) $2,340,000.XXXXXX2. As of January 1, 2011, Survival Industries, Inc. purchased a boat at a cost of $400,000.When purchased, the company was using the double-declining depreciation method.Key info on the asset at time of purchase is the following.Estimated useful life is 8 years.Residual Value is $0.At the beginning of 2014, the CFO decided to change to straight-line depreciation method.Compute the depreciation expense for 2014. (Points: 5)a) $50,000b) $80,750XXXXXXc) $33,750d) $16,8753. (TCO E) Mystical Corporation found the following errors in their year-end financial statements.As of Dec. 2012 As of Dec. 2013Ending Inventory $32,000 understated $46,000 overstatedDepreciation Exp. $7,000 understatedOn December 31, 2013, a fully depreciated machine was sold for $35,000 but the sale was not recorded until January 15, 2014 when the cash was received. In 2012, a three-year insurance premium was prepaid for $45,000 of which the entire amount was expensed in the first year.There were no other errors or corrections. Ignore any tax considerations.What is the total net effect of errors on Mystical's 2013 net income? (Points: 5)a) Retained earnings understated by $29,000b) Retained earnings understated by $4,000c) Retained earnings understated by $-3,000XXXXXXd) Retained earnings overstated by $18,0004. (The four types of accounting changes, including error correction, areI. change in accounting principle,II. change in accounting estimate,III. change in reporting entity, andIV. error correction.Required:The following are a series of situations. Indicate the type of change.1 Change from presenting nonconsolidated to consolidated financial statements2 Change in expected recovery of an account receivable3 Change due to charging a new asset directly to an expense account4 Change from expensing to capitalizing certain costs, due to a change in periods benefited5 Change in both estimate and acceptable accounting principles6 Change from FIFO to LIFO inventory procedures7 Change due to failure to recognize an accrued (uncollected) revenue8 Change in amortization period for an intangible asset9 Change from straight-line to sum-of-the-years'-digits method of depreciation10 Changing the companies included in combined financial statements11 Change in the loss rate on warranty costs12 Change due to failure to recognize and accrue income13 Change in residual value of a depreciable plant asset14 Change in life of a depreciable plant asset15 Change due to understatement of inventory (Points: 15)1. change in reporting entity2 Change in Accounting estimate3. Error correction4. Change in accounting estimate8.5. Change in accounting estimate6. Change in accounting principle7. Error correction8. Change in accounting estimate9. Change in accounting estimate10. Change in reporting entity11. Change in the accounting estimate12. Error Correction13. Change in accounting estimate14 Change in accounting estimate15 Error correction


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