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Accounting Principles
Accounting Principles MCQs
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How many acceptable approaches are there for changes in accounting principles?
One.
Two.
Three.
Four.
?
Retrospective restatement usually is not used for a:
Change in accounting estimate.
Change in accounting principle.
Change in entity.
Correction of error.
?
An accounting change that is reported by the prospective approach is reflected in the financial statements of:
Prior years only.
Prior years plus the current year.
The current year only.
Current and future years.
?
When a change in accounting principle is reported, what is sometimes sacrificed?
Relevance.
Consistency.
Conservatism.
Representational faithfulness.
?
When an accounting change is reported under the retrospective approach, prior years’ financial statements are:
Revised to reflect the use of the new principle.
Reported as previously prepared.
Left unchanged.
Adjusted using prior period adjustment procedures.
?
Regardless of the type of accounting change that occurs, the most important responsibility is:
To properly determine the tax effect.
To communicate that a change has occurred.
To compute the correct amount of the change.
None of these answer choices are correct.
?
Which of the following changes would not be accounted for using the prospective approach?
A change to LIFO from average costing for inventories.
A change from application of the LCNRV rule from individual item costing to an aggregate costing approach.
A change from straight-line to double-declining balance depreciation.
A change from double-declining balance to straight-line depreciation.
?
Accounting changes occur for which of the following reasons?
Management is being fair and consistent in financial reporting.
Management compensation is affected.
Debt agreements are impacted.
All of these answer choices are correct.
?
Which of the following changes is not usually accounted for retrospectively?
Change from expensing extraordinary repairs to capitalizing the expenditures.
Change from FIFO to LIFO.
Change in the composition of firms reporting on a consolidated basis.
Change from LIFO to FIFO.
?
Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with Internationa...
Change in reporting entity.
Change to the LIFO method from the FIFO method.
Change in accounting estimate.
Change in depreciation methods.
?
Which of the accounting changes listed below is more associated with financial statements prepared in accordance with U.S. GAAP than with Internationa...
Change in estimated useful life of depreciable assets.
Change from the FIFO method of costing inventories to the LIFO method.
Change in depreciation method.
Change in reporting entity.
?
Which of the following changes should be accounted for using the retrospective approach?
A change in the estimated life of a depreciable asset.
A change from straight-line to declining balance depreciation.
A change to the LIFO method of costing inventories.
A change in accounting for long-term construction contracts by recognizing revenue over time rather than when the contract is completed.
?
Companies should report the cumulative effect of an accounting change in the income statement:
In the quarter in which the change is made.
In the annual financial statements only.
In the first quarter of the fiscal year in which the change is made.
Never.
?
Disclosure notes related to a change in accounting principle under the retrospective approach should include:
The effect of the change on executive compensation.
The auditor’s approval of the change.
The SEC’s permission to change.
Justification for the change.
?
Which of the following is an example of a change in accounting principle?
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.
?
Which of the following is not an example of a change in accounting principle?
A change in the useful life of a depreciable asset.
A change from LIFO to FIFO for inventory costing.
A change to the full costing method in the extractive industries.
A change to the equity method of accounting for investments.
?
When the retrospective approach is used for a change to the FIFO method, which of the following accounts is usually not adjusted?
Deferred Income Taxes.
Inventory.
Retained Earnings.
All of these answer choices are usually adjusted.
?
JFS Co. changed from straight-line to double-declining-balance depreciation. The journal entry to record the change includes:
A credit to accumulated depreciation.
A debit to accumulated depreciation.
A debit to a depreciable asset.
The change does not require a journal entry.
?
National Hoopla Company switches from sum-of-the-years’ digits depreciation to straight- line depreciation. As a result:
Current income tax payable increases.
The cumulative effect decreases current period earnings.
Prior periods’ financial statements are restated.
None of these answer choices are correct.
?
If a change is made from straight-line to units-of-production depreciation, one should record the effects by a journal entry including:
A credit to deferred tax liability.
A credit to accumulated depreciation.
A debit to depreciation expense.
No journal entry is required.
?
On January 2, 2018, Tobias Company began using straight-line depreciation for a certain class of assets. In the past, the company had used double-decl...
An increase of $40,000.
A decrease of $40,000.
An increase of $24,000.
None of these answer choices are correct.
?
Which of the following accounting changes should not be accounted for prospectively?
The correction of an error.
A change from declining balance to straight-line depreciation.
A change from straight-line to declining balance depreciation.
A change in the expected salvage value of a depreciable asset.
?
Prior years’ financial statements are restated under the:
Current approach.
Prospective approach.
Retrospective approach.
None of these answer choices are correct.
?
A change that uses the prospective approach is accounted for by:
Implementing it in the current year.
Reporting pro forma data.
Retrospective restatement of all prior financial statements in a comparative annual report.
Giving current recognition of the past effect of the change.
?
The cumulative effect of most changes in accounting principle is reported:
In the income statement between income from continuing operations and net income.
In the income statement after income and before income tax.
In the income statement before income from continuing operations.
In the balance sheet accounts affected.
?
When an accounting change is reported under the retrospective approach, account balances in the general ledger:
Are not adjusted.
Are closed out and then updated.
Are adjusted net of the tax effect.
Are adjusted to what they would have been had the new method been used in previous years.
?
During 2018, Hoffman Co. decides to use FIFO to account for its inventory transactions. Previously, it had used LIFO.
Hoffman is not required to make any accounting adjustments.
Hoffman has made a change in accounting principle requiring retrospective adjustment.
Hoffman has made a change in accounting principle requiring prospective application.
Hoffman needs to correct an accounting error.
?
Which of the following would not be accounted for using the retrospective approach?
A change from LIFO to FIFO inventory costing.
A change in accounting for long-term construction contracts by recognizing revenue over time rather than when the contract is completed.
A change in depreciation methods.
A change from the equity method of accounting for investments.
?
Which of the following would not be accounted for using the prospective approach?
A change to LIFO from FIFO for inventory costing.
A change in price indexes used under the LIFO method of inventory costing.
A change in estimate.
A change from the cash basis to accrual accounting.
?
Which of the following changes in inventory costing usually should not be reported by revising the financial statements of prior periods?
The weighted-average method to the LIFO method.
The weighted-average method to the FIFO method.
FIFO method to the weighted-average method.
LIFO method to the weighted-average method.
?
Which of the following changes should be accounted for using the retrospective approach?
A change in the estimated useful life of a depreciable asset.
A change from straight-line to declining balance depreciation.
A change in accounting for long-term construction contracts by recognizing revenue over time rather than when the contract is completed.
A change to LIFO method of costing inventories.
?
La Casita Restaurants changed from the FIFO method of inventory costing to the weighted average method during 2018. When reported in the 2018 comparat...
Increased.
Decreased.
Increased or decreased, depending on how prices changed.
Unaffected.
?
B Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2018. The change affects machinery purchased ...
$9,120.
$13,680.
$15,840.
$19,200.
?
Blue Co. has a patent on a communication process. The company has amortized the patent on a straight-line basis since 2014, when it was acquired at a ...
$4 million.
$5 million.
$10 million.
$20 million.
?
Orange Corp. constructed a machine at a total cost of $70 million. Construction was completed at the end of 2014 and the machine was placed in service...
$4.8 million.
$5.4 million.
$6.6 million.
$9.4 million.
?
Retrospective restatement usually is appropriate for a change in: -Accounting Estimate -Accounting Principle a. Yes Yes b. Yes No c. No Yes d....
Option A
Option B
Option C
Option D
?
For 2017, P Co. estimated its two-year equipment warranty costs based on $23 per unit sold in 2017. Experience during 2018 indicated that the estimate...
In 2018 income from continuing operations.
As an accounting change, net of tax, below 2018 income from continuing operations.
As an accounting change requiring 2017 financial statements to be restated.
As a correction of an error requiring 2017 financial statements to be restated.
?
Which of the following is a change in estimate?
A change from the full costing method in the extractive industries.
A change from recognizing construction contract revenue over time to recognizing revenue at a point in time.
Consolidating a subsidiary for the first time.
A change in the termination rate of employees under a pension plan.
?
Which of the following is not a change in estimate?
A change in the useful life of a depreciable asset.
A change in the mortality rate used for pension computations.
A change from the cost to the equity method in accounting for investments.
A change in the warranty expense percentage.
?
A change in the residual value of equipment is accounted for:
As a prior period adjustment.
Prospectively.
Retrospectively.
None of these answer choices are correct.
?
Gore Inc. recorded a liability in 2018 for probable litigation losses of $2 million. Ultimately, $5 million in legitimate warranty claims were filed b...
Gore has made a change in accounting principle, requiring retrospective adjustment.
Gore needs to correct an accounting error.
Gore is required to adjust a change in accounting estimate prospectively.
Gore is not required to make any accounting adjustments.
?
Which of the following is accounted for prospectively?
Changes from the weighted-average method of inventory costing to FIFO.
Change in reporting entity.
Change in the percentage used to determine warranty expense.
Correction of an error.
?
The prospective approach usually is required for:
A change in accounting principle.
A change in reporting entity.
A change in estimate.
A correction of an error.
?
Cooper Inc. took physical inventory at the end of 2017. Purchases that were acquired FOB destination were in transit, so they were not included in the...
Cooper needs to correct an accounting error.
Cooper has made a change in accounting principle, requiring retrospective adjustment.
Cooper is required to adjust a change in accounting estimate prospectively.
Cooper is not required to make any accounting adjustments.
?
In December 2018, Kojak Insurance Co. received $500,000 in premiums for a two-year property insurance policy. The company recorded the transaction by ...
Kojak needs to correct an accounting error.
Kojak has made a change in accounting principle, requiring retrospective adjustment.
Kojak is required to adjust a change in accounting estimate prospectively.
Kojak is not required to make any accounting adjustments.
?
During 2018, P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts: 2016 $1...
Correct.
$30,000 overstated.
$150,000 overstated.
$270,000 overstated.
?
Which of the following is not a responsibility of board of directors to control according to the Guidance for directors- Governance processes for cont...
evaluating senior management of the organization
establishing and monitor the organization’s ethical values
assessing the board of director’s effectiveness
establishing the control environment for the organization
