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ACCT 557 week 5 quiz




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.XXXXXX;2. 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) $50,000;b) $80,750XXXXXX;c) $33,750;d) $16,875;3. (TCO E) Mystical Corporation found the following errors in their year-end financial statements.;As of Dec. 2012 As of Dec. 2013;Ending Inventory $32,000 understated $46,000 overstated;Depreciation Exp. $7,000 understated;On 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 $29,000;b) Retained earnings understated by $4,000;c) Retained earnings understated by $-3,000XXXXXX;d) Retained earnings overstated by $18,000;4. (The four types of accounting changes, including error correction, are;I. change in accounting principle;II. change in accounting estimate;III. change in reporting entity, and;IV. error correction.;Required;The following are a series of situations. Indicate the type of change.;1 Change from presenting nonconsolidated to consolidated financial statements;2 Change in expected recovery of an account receivable;3 Change due to charging a new asset directly to an expense account;4 Change from expensing to capitalizing certain costs, due to a change in periods benefited;5 Change in both estimate and acceptable accounting principles;6 Change from FIFO to LIFO inventory procedures;7 Change due to failure to recognize an accrued (uncollected) revenue;8 Change in amortization period for an intangible asset;9 Change from straight-line to sum-of-the-years'-digits method of depreciation;10 Changing the companies included in combined financial statements;11 Change in the loss rate on warranty costs;12 Change due to failure to recognize and accrue income;13 Change in residual value of a depreciable plant asset;14 Change in life of a depreciable plant asset;15 Change due to understatement of inventory (Points: 15);1. change in reporting entity;2 Change in Accounting estimate;3. Error correction;4. Change in accounting estimate8.;5. Change in accounting estimate;6. Change in accounting principle;7. Error correction;8. Change in accounting estimate;9. Change in accounting estimate;10. Change in reporting entity;11. Change in the accounting estimate;12. Error Correction;13. Change in accounting estimate;14 Change in accounting estimate;15 Error correction


Paper#79767 | Written in 18-Jul-2015

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