TREPC Flashcards Preview

Financial Accounting > TREPC > Flashcards

Flashcards in TREPC Deck (25):
1

O minutes On January I, year 2, an intangible asset with a 35-year estimated useful life was acquired. On January I, year 6, a review was made of the estimated useful life, and it was determined that the intangible asset had an estimated useful life of 45 more years. As a result of the review 

he unamortized cost at January I, year 6, should be amortized over 45-year life.

2

Evergreen Company purchased a patent on January I, year I, for $178,500. The patent was being amortized over its remaining legal life of 15 years expiring on January I, year 15. During year 4 Evergreen determined that the economic benefits of the patent would not last longer than 10 years from the date of acquisition. What amount should be charged to patent amortization expense for the year ended December 31, year 4?

$20,400 

3

The effects of change in accounting principle should be recorded on prospective basis when the change is from the

Straight-line method of depreciation for previously recorded assets to the double-declining balance method. 

4

In year 6, Spirit, Inc. determined that the 12-year estimated useful life of a machine purchased for $48,000 in January year I should be extended by three years. The machine is being depreciated using the straight-line method and has no salvage value. What amount of depreciation expense should Spirit report in its financial statements for the year ending December 31, year 6?

$2,800

5

The effect of change in accounting principle which is inseparable from the effect of change in accounting estimate should be reported 

In the period of change and future periods if the change affects both.

6

On December 31, year 2, Foster, Inc. appropriately changed to the FIFO cost method from the weighted-average cost method for financial statement and income tax purposes. The change will result in a $150,000 increase in the beginning inventory at January I, year 3. Assuming a 30% income tax rate, the period-specific effect of this accounting change for the year ended December 31, year 2, is 

 $105,000

7

On January I ten years ago, Andrew Co. created a subsidiary for the purpose of buying an oil tanker depot at a cost of $1,500,000. Andrew expected to operate the depot for ten years, at which time it is legally required to dismantle the depot and remove underground storage tanks. It was estimated that it would cost $150,000 to dismantle the depot and remove the tanks at the end of the depot's useful life. However, the actual cost to demolish and dismantle the depot and remove the tanks in the tenth year is $155,000 What amount of expense should Andrew recognize in its financial statements in year 10?

$5,000 expense.

8

A change in accounting principle that would require retrospective application to all prior periods would be change

From using the percentage-of-completion method of accounting for long-term construction contracts to the completed contract method. 

9

On January I, year I, Miller Company purchased for $275,000 a machine with an estimated useful life of 10 years and no salvage value. The machine was depreciated using the sum-of—the-years' digits method. On January I, year 2, Miller changed to the straight-line method of depreciation. The estimated useful life has not changed. Miller can justify the change. What should be the depreciation expense on this machine for the year ended December 31, year 2?

$25,000

10

In which of the following situations should company report prior period adjustment?

a. The correction of a mathematical error in the calculation of prior years' depreciation.

b. A switch from the straight-line to double-declining balance method of depreciation.

c. The scrapping of an asset prior to the end of its expected useful life.

d. A change in the estimated useful lives of fixed assets purchased in prior years. la nat- This answer is correct. The requirement is to identify the situation that should be reported as a prior period adjustment. This answer is correct because the correction of an erar in prior financial statements should be treated as prior No tes: period adjustment. 12 13 14 15 16 17 18 19 20 21 22 mum pted Directions 23 24 previous Next 954 AM 3/8/2014

The correction of a mathematical error in the calculation of prior years' depreciation. 

11

A change in the periods benefited by deferred cost because additional information has been obtained is

An accounting change that should be reported in the period of change and future periods if the change affects both.

12

Under IFRS, voluntary change in accounting method is applied: 

Retrospectively. 

13

Under IFRS, changes in accounting principles may occur  

Either when a change is required by an IFRS or when it provides reliable and more relevant information.

14

The year I financial statements of Bice Company reported net income for the year ended December 31, year I, of $2,000,000. On July I, year 2, subsequent to the issuance of the year I financial statements, Bice changed from an accounting principle that is not generally accepted to one that is generally accepted. If the generally accepted accounting principle had been used in year I, net income for the year ended December 31, year I, would have been decreased $1,000,000. On August I, year 2, Bice discovered a mathematical error relating to its year I financial statements. If this error had been discovered in year I, net income for the year ended December 31, year I, would have been increased $500,000. What amount, if any, should be included in net income for the year ended December 31, year 2, because of the items noted above?

$0

15

Which of the following describes change in reporting entity?

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

b. A company presents consolidated financial statements in place of individual company financial statements.

c. A company discontinues a product line in one of their factories.

d. A company acquires additional shares of an investee and changes to the equity method of accounting. 

A company presents consolidated financial statements in place of individual company financial statements. 

16

On January I, year 2, Belmont Company changed its inventory cost flow method to the FIFO cost method from the LIFO cost method. Belmont can justify the change, which was made for both financial statement and income tax reporting purposes. Belmont's inventories aggregated $4,000,000 on the LIFO basis at December 31, year I. Supplementary records maintained by Belmont showed that the inventories would have totaled $4,800,000 at December 31, year I, on the FIFO basis. Belmont does not have sufficient information to calculate the effect of the change in inventories for years prior to year I. Ignoring income taxes, the adjustment for the effect of changing to the FIFO method from the LIFO method should be reported by Belmont 

As an adjustment to the balances of inventory, and retrospetive application to cost of goods sold, net income, and retained earnings in the year I comparative financial statements.

17

Cory Company acquired some machinery on January 2, year 2. Cory was using straight-line depreciation with an estimated life of 15 years with no salvage value for this machinery. On January 2, year S, Cory estimated that the remaining life of this machinery was 6 years with no salvage value. How should this change be accounted for by Cory?

Revising future depreciation per year to equal the book value on January 2, year 6, divided by 6.

18

Gaffney uses IFRS to prepare its financial statements. During year 4, Gaffney voluntarily changes its accounting method because the new method will provide more reliable and relevant information. Gaffney can estimate the effects of the change. How should Gaffney treat the change in accounting principle?

 On a retrospective basis.

19

Presenting consolidated financial statements this year when statements of individual companies were presented last year is

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

20

On December 31, year 2, Rapp Co. changed inventory cost methods to FIFO from LIFO for financial statement and income tax purposes. The change will result in a $175,000 increase in the beginning inventory at January I, year 3. Rapp does not maintain records to identify the effect of the change on years prior to year I. Assuming a 30% income tax rate, the cumulative effect of this accounting change reported in the income statement for the year ended December 31, year 3, is

$0

21

Which of the following describes the appropriate reporting treatment for change in accounting estimate?

a. By reporting pro forma amounts for prior periods.

b.  In the period of change and future periods if the change affects both.

c. In the period of change with no future consideration.

d. By restating amounts reported in financial statements of prior periods.

In the period of change and future periods if the change affects both. 

22

Bond Company purchased a machine on January I, year I, for $3,000,000. At the date of acquisition, the machine had an estimated useful life of 6 years with no salvage. The machine is being depreciated on a straight-line basis. On January I, year 4, Bond determined, as a result of additional information, that the machine had an estimated useful life of 8 years from the date of acquisition with no salvage. An accounting change was made in year 4 to reflect this additional information. What is the amount of depreciation expense on this machine that should be charged in Bond's income statement for the year ended December 31, year 4? 

$300,000

23

A change in the salvage value of an asset depreciated on straight-line basis, arising because additional information has been obtained, is 

An accounting change that should be reflected in the period of change and future periods if the change affects both.

24

A company changes from an accounting principle that is not generally accepted to one that is generally accepted. The effect of the change should be reported, net of applicable income taxes, in the current

Retained earnings statement as an adjustment of the opening balance.

25

Under IFRS, change in accounting estimate is accounted for

Prospectively in the period of change and future periods.