1. Kap Company switched from the sum-of-the-years-digits depreciation method to straight-line depreciation in 2011. The change affects machinery purchased at the beginning of 2009 at a cost of $36,000. The machinery has an estimated life of five years and an estimated residual value of $1,800. What is Kap's 2011 depreciation expense?

a. $4,200

b. $4,560

c. $4,800

d. $7,920

2. Retrospective restatement usually is appropriate for a change in:

3. For 2010, Pac Co. estimated its two-year equipment warranty costs based on $100 per unit sold in 2010. Experience during 2011 indicated that the estimate should have been based on $110 per unit. The effect of this $10 difference from the estimate is reported

a. In 2011 income from continuing operations.

b. As an accounting change, net of tax, below 2011 income from continuing operations.

c. As an accounting change requiring 2010 financial statements to be restated.

d. As a correction of an error requiring 2010 financial statements to be restated.

4. A company has included in its consolidated financial statements this year a subsidiary acquired several years ago that was appropriately excluded from consolidation last year. This results in

a. An accounting change that should be reported prospectively.

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

c. A correction of an error.

d. Neither an accounting change nor a correction of an error.

5. Conn Co. reported a retained earnings balance of $400,000 at December 31, 2010. In August 2011, Conn determined that insurance premiums of $60,000 for the three-year period beginning January 1, 2010, had been paid and fully expensed in 2010. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its 2011 statement of retained earnings?

a. $420,000

b. $428,000

c. $440,000

d. $442,000

6. During 2012, Paul Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts:

2010 ... $ 60,000 understated

2011 ..... 75,000 overstated

Paul uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, Paul's retained earnings at January 1, 2012, would be

a. Correct.

b. $15,000 overstated.

c. $75,000 overstated.

d. $135,000 overstated.