Accounting Errors

Question 1

How do you calculate the remaining useful life when an asset’s life is revised?

Answer 1

Question 2

When is a change in accounting principle recorded prospectively vs. retrospectively

Answer 2

Question 3

Impact of inventory errors on COGS and Net income blueprint

Answer 3

Question 4

How is the correction of a mathematical error in prior years’ depreciation recorded?

Answer 4

Question 5

What are the types of accounting changes and their treatments

Answer 5

Question 6

What is a change in accounting principle, and how is it treated

Answer 6

Question 7

How are prior-period accounting errors corrected when comparative financial statements are issued or not issued?

Answer 7

Prior-Period Accounting Errors: Correction Methods

If Comparative Financial Statements Are Issued:

• Errors are corrected directly in prior-period financials as if the error never occurred.
• No impact on the current period’s retained earnings.

If No Comparative Financial Statements Are Issued:

• Errors are corrected via a cumulative adjustment to retained earnings (or AOCI) in the current period.
• Prior-period financials are not restated.

Key Point:

• Errors must be corrected properly; disclosure alone is insufficient.

Question 8

What is a change in reporting entity, and how is it accounted for

Answer 8

Question 9

How is a change in revenue recognition for long-term construction contracts from a point in time to over time accounted for?

Answer 9

Question 10

What are the steps to adjust beginning retained earnings for a prior-period error involving over-expensed amounts? Say 60k was recognized lump sum when it should have been over a 3y period

Answer 10

Question 11

How are changes in depreciation method and depreciation errors treated differently under U.S. GAAP?

Answer 11

Question 12

How is the cumulative effect of a change from LIFO to FIFO reported in the financial statements under ASC 250?

Answer 12

Question 13

How is the cumulative effect of changing inventory methods calculated and reported

Answer 13

Question 14

How is a change in depreciation method reported in financial statements?

Answer 14

Question 15

How are changes in warranty cost estimates treated in financial statements?

Answer 15

Question 16

How does a change to the percentage-of-completion method affect financial statements

Answer 16

Question 17

How is a change in accounting principle inseparable from a change in estimate reported, and why is separate disclosure incorrect

Answer 17

Question 18

How is an accounting change handled when retrospective application is impracticable, and why are other treatments incorrect

Answer 18

Question 19

How is an understated ending inventory error in prior financial statements corrected under GAAP

Answer 19

Question 20

How is a change from LIFO to FIFO accounted for, and why are other treatments incorrect

Answer 20

Question 21

How do beginning and ending inventory errors directly or indirectly affect Cost of Goods Sold (COGS)

Answer 21

Question 22

How do beginning and ending inventory errors affect COGS example

Answer 22

Question 23

How is a change in inventory valuation method (e.g., individual item to aggregate approach) reported, and why are other treatments incorrect

Answer 23

Question 24

Are any affects reported as cumulative effects on the income statement?

Answer 24

Question 25

Which of the following errors causes an overstatement of both current assets and stockholders' equity? A. Accrued Sales Expenses B. Misclassifying a Noncurrent Note Receivable C. Understatement of Depreciation D. Misclassifying Holiday Pay as Manufacturing Overhead Why are the other options incorrect?

Answer 25

Question 26

How should indirect effects from a change in accounting principle be reported, and what are examples of indirect effects

Answer 26

Question 27

What is a direct affect of a change in accounting principle? Which of the following is considered a direct effect of a change in accounting principle? A) Deferred taxes B) Profit sharing C) Royalty payments D) None of the above

Answer 27

Question 28

How is the cumulative effect of a change from the cash basis to the accrual basis reported

Answer 28

Question 29

How are error corrections and cumulative effects of principle changes addressed, and how do they differ

Answer 29

Question 30

A change in depreciation method is treated as a ___________, and adjustments are made ______________ starting in the year of change.

Answer 30

A change in depreciation method is treated as a **change in estimate**, and adjustments are made **prospectively** starting in the year of change.

Question 31

Key differences between retrospective and retroactive

Answer 31

Question 32

Change in principle and change in estimates.

Answer 32

Question 33

Change in accounting estimate of an assets useful life formula

Answer 33