CH20 TB 8e final - practice questions PDF

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Chapter 20 Accounting Changes True/False Questions 1. Most, but not all, changes in accounting principle are reported using the retrospective approach. Answer: True Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Types of accounting changes Topic Area: Distinguish retrospective and prospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement 2. Prior years' financial statements are restated when the prospective approach is used. Answer: False Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Distinguish retrospective and prospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

3. A change in accounting estimate and a change in reporting entity are types of changes in accounting principle. Answer: False Level of Learning: 2 Medium Learning Objective: 20-01 Topic Area: Types of accounting changes Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement 4. Most changes in accounting principle require a disclosure justifying the change in the first set of financial statements that the change is made. Answer: True Level of Learning: 1 Easy Learning Objective: 20-02 Topic Area: Change in accounting principle Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

5. All changes reported using the retrospective approach require prior period adjustments. Answer: False Level of Learning: 2 Medium Learning Objective: 20-02 Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 20-1

Chapter 20 Accounting Changes Topic Area: Change in accounting principle ‒ Retrospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

6. All changes in estimate are accounted for retrospectively. Answer: False Level of Learning: 1 Easy Learning Objective: 20-03 Topic Area: Change in accounting estimate Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

7. A change to the LIFO method of valuing inventory usually requires use of the retrospective method. Answer: False Level of Learning: 2 Medium Learning Objective: 20-03 Topic Area Change in accounting principle ‒ Prospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

8. A change in reporting entity and a material error correction are both reported prospectively. Answer: False Level of Learning: 1 Easy Learning Objective: 20-01 Learning Objective: 20-05 Learning Objective: 20-06 Topic Area: Types of accounting changes Topic Area: Distinguish retrospective and prospective Topic Area: Change in reporting entity Topic Area: Error correction Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

9. A change in reporting entity requires note disclosure in all subsequent financial statements prepared for the new entity. Answer: False Level of Learning: 1 Easy Learning Objective: 20-05 Topic Area: Change in reporting entity Blooms: Remember 20-2

Spiceland/Sepe/Nelson, Intermediate Accounting, Eighth Edition

Chapter 20 Accounting Changes AACSB: Reflective thinking AICPA: FN Measurement

10. Error corrections require restatement of all the affected prior year financial statements reported in comparative financial statements. Answer: True Level of Learning: 1 Easy Learning Objective: 20-06 Topic Area: Error correction Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

Multiple Choice Questions 11. How many acceptable approaches are there for changes in accounting principles? a. One. b. Two. c. Three. d. Four. Answer: b Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Distinguish retrospective and prospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

12. Which of the following is not one of the approaches for reporting accounting changes? a. The change approach. b. The retrospective approach. c. The prospective approach. d. All of these answer choices are approaches for reporting accounting changes. Answer: a Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Distinguish retrospective and prospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement 13.

Retrospective restatement usually is not used for a: a. Change in accounting estimate. b. Change in accounting principle. c. Change in entity. d. Correction of error.

Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 20-3

Chapter 20 Accounting Changes Answer: a Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Distinguish retrospective and prospective Topic Area: Types of accounting changes Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

14. An accounting change that is reported by the prospective approach is reflected in the financial statements of: a. Prior years only. b. Prior years plus the current year. c. The current year only. d. Current and future years. Answer: d Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Distinguish retrospective and prospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

15. When a change in accounting principle is reported, what is sometimes sacrificed? a. Relevance. b. Consistency. c. Conservatism. d. Representational faithfulness. Answer: b Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Types of accounting changes Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

16. When an accounting change is reported under the retrospective approach, prior years' financial statements are: a. Revised to reflect the use of the new principle. b. Reported as previously prepared. c. Left unchanged. d. Adjusted using prior period adjustment procedures. Answer: a Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Distinguish retrospective and prospective Blooms: Remember 20-4

Spiceland/Sepe/Nelson, Intermediate Accounting, Eighth Edition

Chapter 20 Accounting Changes AACSB: Reflective thinking AICPA: FN Measurement

17. Regardless of the type of accounting change that occurs, the most important responsibility is: a. To properly determine the tax effect. b. To communicate that a change has occurred. c. To compute the correct amount of the change. d. None of these answer choices is correct. Answer: b Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Types of accounting changes Blooms: Evaluate AACSB: Reflective thinking AICPA: FN Measurement

18. Which of the following changes would not be accounted for using the prospective approach? a. A change to LIFO from average costing for inventories. b. A change from the individual application of the LCM rule to aggregate approach. c. A change from straight-line to double-declining balance depreciation. d. A change from double-declining balance to straight-line depreciation. Answer: b Level of Learning: 2 Medium Learning Objective: 20-01 Topic Area: Types of accounting changes Topic Area: Distinguish retrospective and prospective Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

19. Accounting changes occur for which of the following reasons? a. Management is being fair and consistent in financial reporting. b. Management compensation is affected. c. Debt agreements are impacted. d. All of these answer choices are correct. Answer: d Level of Learning: 2 Medium Learning Objective: 20-01 Topic Area: Types of accounting changes Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement 20.

Which of the following changes is not usually accounted for retrospectively? a. Change from expensing extraordinary repairs to capitalizing the expenditures. b. Change from FIFO to LIFO. c. Change in the composition of firms reporting on a consolidated basis.

Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 20-5

Chapter 20 Accounting Changes d. Change from LIFO to FIFO. Answer: b Level of Learning: 1 Easy Learning Objective: 20-01 Topic Area: Types of accounting changes Topic Area: Distinguish retrospective and prospective Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

21.

Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Standards (IFRS)? a. Change in reporting entity. b. Change to the LIFO method from the FIFO method. c. Change in accounting estimate. d. Change in depreciation methods. Answer: b Level of Learning: 2 Medium Learning Objective: 20-02 Learning Objective: 20-07 Topic Area: Types of accounting changes Topic Area: IFRS ‒ Accounting changes and error correction Blooms: Remember AACSB: Reflective thinking AACSB: Diversity AICPA: FN Measurement AICPA: BB Global Feedback: LIFO is not a permissible method for accounting for inventory under IFRS.

22.

Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with International Financial Reporting Standards (IFRS)? a. Change in estimated useful life of depreciable assets. b. Change from the FIFO method of costing inventories to the LIFO method. c. Change in depreciation method. d. Change in reporting entity. Answer: b Level of Learning: 2 Medium Learning Objective: 20-02 Learning Objective: 20-07 Topic Area: Change in accounting principle ‒ Retrospective Topic Area: IFRS ‒ Accounting changes and error correction Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

20-6

Spiceland/Sepe/Nelson, Intermediate Accounting, Eighth Edition

Chapter 20 Accounting Changes

23.

Which of the following changes should be accounted for using the retrospective approach? a. A change in the estimated life of a depreciable asset. b. A change from straight-line to declining balance depreciation. c. A change to the LIFO method of costing inventories. d. A change from the completed-contract method of accounting for long-term construction contracts. Answer: d Level of Learning: 1 Easy Learning Objective: 20-01 Learning Objective: 20-02 Topic Area: Distinguish retrospective and prospective Topic Area: Change in accounting principle ‒ Retrospective Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

24. Companies should report the cumulative effect of an accounting change in the income statement: a. In the quarter in which the change is made. b. In the annual financial statements only. c. In the first quarter of the fiscal year in which the change is made. d. Never. Answer: d Level of Learning: 1 Easy Learning Objective: 20-02 Topic Area: Change in accounting principle ‒ Retrospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

25. Disclosure notes related to a change in accounting principle under the retrospective approach should include: a. The effect of the change on executive compensation. b. The auditor's approval of the change. c. The SEC's permission to change. d. Justification for the change. Answer: d Level of Learning: 1 Easy Learning Objective: 20-02 Topic Area: Change in accounting principle ‒ Retrospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

26. Which of the following is an example of a change in accounting principle? Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 20-7

Chapter 20 Accounting Changes a. b. c. d.

A change in inventory costing methods. A change in the estimated useful life of a depreciable asset. A change in the actuarial life expectancies of employees under a pension plan. Consolidating a new subsidiary.

Answer: a Level of Learning: 2 Medium Learning Objective: 20-01 Topic Area: Types of accounting changes Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

27. Which of the following is not an example of a change in accounting principle? a. A change in the useful life of a depreciable asset. b. A change from LIFO to FIFO for inventory costing. c. A change to the full costing method in the extractive industries. d. A change from the cost method to the equity method of accounting for investments. Answer: a Level of Learning: 2 Medium Learning Objective: 20-02 Topic Area: Change in accounting principle ‒ Retrospective Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

28. When the retrospective approach is used for a change to the FIFO method, which of the following accounts is usually not adjusted? a. Deferred Income Taxes. b. Inventory. c. Retained Earnings. d. All of these answer choices are usually are adjusted. Answer: d Level of Learning: 2 Medium Learning Objective: 20-02 Topic Area: Change in accounting principle ‒ Retrospective Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

29. JFS Co. changed from straight-line to double-declining-balance depreciation. The journal entry to record the change includes: a. A credit to accumulated depreciation. b. A debit to accumulated depreciation. c. A debit to a depreciable asset. d. The change does not require a journal entry. Answer: d 20-8

Spiceland/Sepe/Nelson, Intermediate Accounting, Eighth Edition

Chapter 20 Accounting Changes Level of Learning: 2 Medium Learning Objective: 20-04 Topic Area: Change in depreciation method Blooms: Analyze AACSB: Analytical thinking AICPA: FN Measurement

30. National Hoopla Company switches from sum-of-the-years' digits depreciation to straight-line depreciation. As a result: a. Current income tax payable increases. b. The cumulative effect decreases current period earnings. c. Prior periods’ financial statements are restated. d. None of these answer choices is correct. Answer: d Level of Learning: 2 Medium Learning Objective: 20-04 Topic Area: Change in depreciation method Blooms: Analyze AACSB: Analytical thinking AICPA: FN Measurement

31. If a change is made from straight-line to SYD depreciation, one should record the effects by a journal entry including: a. A credit to deferred tax liability. b. A credit to accumulated depreciation. c. A debit to depreciation expense. d. No journal entry is required. Answer: d Level of Learning: 2 Medium Learning Objective: 20-04 Topic Area: Change in depreciation method Blooms: Analyze AACSB: Analytical thinking AICPA: FN Measurement

32. On January 2, 2016, Tobias Company began using straight-line depreciation for a certain class of assets. In the past, the company had used double-declining-balance depreciation for these assets. As of January 2, 2016, the amount of the change in accumulated depreciation is $40,000. The appropriate tax rate is 40%. The separately reported change in 2016 earnings is: a. An increase of $40,000. b. A decrease of $40,000. c. An increase of $24,000. d. None of these answer choices is correct. Answer: d Level of Learning: 2 Medium Learning Objective: 20-04 Topic Area: Change in depreciation method Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 20-9

Chapter 20 Accounting Changes Blooms: Analyze Blooms: Apply AACSB: Analytical thinking AACSB: Knowledge application AICPA: FN Measurement Feedback: A change in depreciation method is reported prospectively. Therefore no cumulative effect of the change is reported in earnings.

33. Which of the following accounting changes should not be accounted for prospectively? a. The correction of an error. b. A change from declining balance to straight-line depreciation. c. A change from straight-line to declining balance depreciation. d. A change in the expected salvage value of a depreciable asset. Answer: a Level of Learning: 1 Easy Learning Objective: 20-01 Learning Objective: 20-03 Topic Area: Distinguish retrospective and prospective Topic Area: Change in accounting principle ‒ Prospective Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

34. Prior years' financial statements are restated under the: a. Current approach. b. Prospective approach. c. Retrospective approach. d. None of these answer choices is correct. Answer: c Level of Learning: 1 Easy Learning Objective: 20-01 Learning Objective: 20-02 Topic Area: Distinguish retrospective and prospective Topic Area: Change in accounting principle ‒ Retrospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

35. A change that uses the prospective approach is accounted for by: a. Implementing it in the current year. b. Reporting pro forma data. c. Retrospective restatement of all prior financial statements in a comparative annual report. d. Giving current recognition of the past effect of the change. Answer: a Level of Learning: 1 Easy Learning Objective: 20-01 Learning Objective: 20-03 20-10

Spiceland/Sepe/Nelson, Intermediate Accounting, Eighth Edition

Chapter 20 Accounting Changes Topic Area: Distinguish retrospective and prospective Topic Area: Change in accounting principle ‒ Prospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement 36. The cumulative effect of most changes in accounting principle is reported: a. In the income statement between income from continuing operations and net income. b. In the income statement after income and before income tax. c. In the income statement before income from continuing operations. n. d. In the balance sheet accounts affected. Answer: d Level of Learning: 1 Easy Learning Objective: 20-02 Topic Area: Change in accounting principle ‒ Retrospective Blooms: Remember AACSB: Reflective thinking AICPA: FN Measurement

37. When an accounting change is reported under the retrospective approach, account balances in the general ledger: a. Are not adjusted. b. Are closed out and then updated. c. Are adjusted net of the tax effect. d. Are adjusted to what they would have been had the new method been used in previous years. Answer: d Level of Learning: 1 Easy Learning Objective: 20-02 Topic Area: Change in accounting principle ‒ Retrospective Blooms: Analyze AACSB: Analytical thinking AICPA: FN Measurement

38. During 2016, Hoffman Co. decides to use FIFO to account for its inventory transactions. Previously, it had used LIFO. a. Hoffman is not required to make any accounting adjustments. b. Hoffman has made a change in accounting principle requiring retrospective adjustment. c. Hoffman has made a change in accounting principle requiring prospective application. d. Hoffman needs to correct an accounting error. Answer: b Level of Learning: 1 Easy Learning Objective: 20-02 Topic Area: Change in accounting principle ‒ Retrospective Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement Intermediate Accounting, Eighth Edition, Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 20-11

Chapter 20 Accounting Changes

39. Which of the following would not be accounted for using the retrospective approach? a. A change from LIFO to FIFO inventory costing. b. A change from average cost to FIFO inventory costing. c. A change in depreciation methods. d. A change from the full cost method in the oil industry. Answer: c Level of Learning: 2 Medium Learning Objective: 20-02 Topic Area: Change in accounting principle ‒ Retrospective Blooms: Understand AACSB: Reflective thinking AICPA: FN Measurement

40. Which o...