Changes In Accounting Principle Quiz Questions

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Changes In Accounting Principle Quiz Questions - Quiz

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Questions and Answers
  • 1. 
      21.     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
    • A. 

      A. materiality.

    • B. 

      B. consistency.

    • C. 

      C. conservatism.

    • D. 

      D. objectivity.

  • 2. 
      22.     Which of the following is not treated as a change in accounting principle?
    • A. 

      A. A change from LIFO to FIFO for inventory valuation

    • B. 

      B. A change to a different method of depreciation for plant assets

    • C. 

      C. A change from full-cost to successful efforts in the extractive industry

    • D. 

      D. A change from completed-contract to percentage-of-completion

  • 3. 
      23.     Which of the following is not a retrospective-type accounting change?
    • A. 

      A. Completed-contract method to the percentage-of-completion method for long-term contracts

    • B. 

      B. LIFO method to the FIFO method for inventory valuation

    • C. 

      C. Sum-of-the-years'-digits method to the straight-line method

    • D. 

      D. "Full cost" method to another method in the extractive industry

  • 4. 
      24.     Which of the following is accounted for as a change in accounting principle?
    • A. 

      A. A change in the estimated useful life of plant assets.

    • B. 

      B. A change from the cash basis of accounting to the accrual basis of accounting.

    • C. 

      C. A change from expensing immaterial expenditures to deferring and amortizing them as they become material.

    • D. 

      D. A change in inventory valuation from average cost to FIFO.

  • 5. 
      25.     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
    • A. 

      A. credit to Accumulated Depreciation.

    • B. 

      B. debit to Retained Earnings in the amount of the difference on prior years.

    • C. 

      C. debit to Deferred Tax Asset.

    • D. 

      D. credit to Deferred Tax Liability.

  • 6. 
      26.     Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line?
    • A. 

      A. The cumulative effect on prior years, net of tax, in the current retained earnings statement

    • B. 

      B. Restatement of prior years’ income statements

    • C. 

      C. Recomputation of current and future years’ depreciation

    • D. 

      D. All of these are required.

  • 7. 
      27.     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
    • A. 

      A. debit to Construction in Process.

    • B. 

      B. debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax.

    • C. 

      C. debit to Retained Earnings in the amount of the difference on prior years, net of tax.

    • D. 

      D. credit to Deferred Tax Liability.

  • 8. 
      28.     Which of the following disclosures is required for a change from LIFO to FIFO?
    • A. 

      A. The cumulative effect on prior years, net of tax, in the current retained earnings statement

    • B. 

      B. The justification for the change

    • C. 

      C. Restated prior year income statements

    • D. 

      D. All of these are required.

  • 9. 
      29.     Stone Company changed its method of pricing inventories from FIFO to LIFO. What type of accounting change does this represent?
    • A. 

      A. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.

    • B. 

      B. A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be presented as previously reported.

    • C. 

      C. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated.

    • D. 

      D. A change in accounting principle for which the financial statements for prior periods included for comparative purposes should be restated.

  • 10. 
      30.     Which type of accounting change should always be accounted for in current and future periods?
    • A. 

      A. Change in accounting principle

    • B. 

      B. Change in reporting entity

    • C. 

      C. Change in accounting estimate

    • D. 

      D. Correction of an error

  • 11. 
      31.     Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate?
    • A. 

      A. Current period and prospectively

    • B. 

      B. Current period and retrospectively

    • C. 

      C. Retrospectively only

    • D. 

      D. Current period only

  • 12. 
      32.     When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a
    • A. 

      A. change in accounting principle.

    • B. 

      B. change in accounting estimate.

    • C. 

      C. prior period adjustment.

    • D. 

      D. correction of an error.

  • 13. 
      34.     Which of the following statements is correct?
    • A. 

      A. Changes in accounting principle are always handled in the current or prospective period.

    • B. 

      B. Prior statements should be restated for changes in accounting estimates.

    • C. 

      C. 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.

    • D. 

      D. Correction of an error related to a prior period should be considered as an adjustment to current year net income.

  • 14. 
      35.     Which of the following describes a change in reporting entity?
    • A. 

      A. A company acquires a subsidiary that is to be accounted for as a purchase.

    • B. 

      B. A manufacturing company expands its market from regional to nationwide.

    • C. 

      C. A company divests itself of a European branch sales office.

    • D. 

      D. Changing the companies included in combined financial statements.

  • 15. 
      36.     Presenting consolidated financial statements this year when statements of individual companies were presented last year isa. 
    • A. 

      A. a correction of an error.

    • B. 

      B. an accounting change that should be reported prospectively.

    • C. 

      C. an accounting change that should be reported by restating the financial statements of all prior periods presented.

    • D. 

      D. not an accounting change.

  • 16. 
      37.     An example of a correction of an error in previously issued financial statements is a change
    • A. 

      A. from the FIFO method of inventory valuation to the LIFO method.

    • B. 

      B. in the service life of plant assets, based on changes in the economic environment.

    • C. 

      C. from the cash basis of accounting to the accrual basis of accounting.

    • D. 

      D. in the tax assessment related to a prior period.

  • 17. 
      38.     Counterbalancing errors do not include
    • A. 

      A. errors that correct themselves in two years.

    • B. 

      B. errors that correct themselves in three years.

    • C. 

      C. an understatement of purchases.

    • D. 

      D. an overstatement of unearned revenue.

  • 18. 
      40.     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
    • A. 

      A. the ending inventory and retained earnings to be understated.

    • B. 

      B. the ending inventory, cost of goods sold, and retained earnings to be understated.

    • C. 

      C. no effect on net income, working capital, and retained earnings.

    • D. 

      D. cost of goods sold and net income to be understated.

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