Accounting Changes & Errors
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CPA Financial Accounting and Reporting (FAR) › Accounting Changes & Errors
Which of the following would be reported as an adjustment to beginning retained earnings for the earliest period presented?
Correction of an error in a period that is not being presented
Cumulative effect of a change in inventory from FIFO to weighted average
Both of these
None of these
Explanation
Both of these choices are presented as prior period adjustments by adjusting retained earnings in the earliest period presented.
Under IFRS, an entity is required to file the following financial statements initially?
2 income statements
2 statements of cash flows
2 statements of changes in equity
3 statements of comprehensive income
Explanation
An entity just filing under IFRS needs to file 2 statements of; comprehensive income, income statements, cash flows, changes in equity, notes, and 3 balance sheets.
Which of the following accounting changes would receive prospective treatment in the income statement?
Change in depreciation method
Change in useful life of an asset
Both of these
None of these
Explanation
Changes in depreciation and changes in estimated useful lifes are applied proactively, not retroactively.
The Charlotte Corporation buys a building on January 1, Year 1, for \$900,000. The building is expected to have a useful life of 10 years and no salvage value. The double-declining balance method is used for depreciation purposes and the half-year convention is not elected. Early in Year 3, company officials decide to switch to the straight-line method of depreciation. What amount of depreciation expense should the company recognize in its Year 3 income statement?
\$57,600
\$62,400
\$72,000
\$90,000
Explanation
In Year 1, the company will report depreciation of $180K ($900K x 20%), bringing the year two beginning book value to $720K. In Year 2, the company will record depreciation of $144K ($720K x 20%), bringing the year 3 beginning book value to $576K. In Year 3, the company will amortize this amount evenly over the remaining 8 years of the asset's life.