Multiple choice questions:
The cumulative effect of an accounting change should generally be reported as an adjustment to the beginning balance of retained earnings in the period in which the change is made for a:

When a change in accounting principle is made during the year, the cumulative effect on retained earnings is determined:
a. during the year using the weighted average method
b. as of the date of the change
c. as of the beginning of the year in which the change is made
d. as of the end of the year in which the change is made
On January 1, 2016, Belmont Company changed its inventory cost flow method to the FIFO method from the LIFO method. Belmont can justify the change which was made for both financial statement and income tax reporting purposes. Belmont€™s inventories were $ 4,000,000 on the LIFO basis at December 31, 2015. Supplementary records maintained by Belmont showed that the inventories would have totaled $ 4,800,000 at December 31, 2015, on the FIFO basis. 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:
a. $ 800,000 adjustment to cost of goods sold on the 2016 income statement
b. $ 800,000 increase to the 2016 beginning balance of retained earnings
c. $ 800,000 gain on the 2016 income statement
d. $ 800,000 decrease to the 2016 beginning balance of retained earnings
A change in the expected service life of an asset arising because additional information has been obtained is:
a. an accounting change that should be reported by restating the financial statements of all prior periods represented
b. an accounting change that should be reported in the period of change and future periods if the change affects both
c. a correction of an error
d. not an accounting change
During 2016, White Company determined that machinery previously depreciated over a 7- year life had a total estimated useful life of only 5 years. An accounting change was made in 2016 to reflect the change in estimate. If the change had been made in 2015, accumulated depreciation at December 31, 2015, would have been $ 1,600,000 instead of $ 1,200,000. As a result of this change, the 2016 depreciation expense was $ 100,000 greater than it would have been if no change were made. The income tax rate was 30% in both years. What is the proper amount of the adjustment to White€™s January 1, 2016, balance of retained earnings?
a. $ 0
b. $ 100,000
c. $ 280,000
d. $ 400,000
Generally, how should a change in accounting estimate that is affected by a change in accounting principle be reported?

On January 2, 2014, Garr Company acquired machinery at a cost of $ 320,000. This machinery was being depreciated by the double- declining- balance method over an estimated useful life of 8 years, with no residual value. At the beginning of 2016, Garr changed to the straight-line method of depreciation. Ignoring income tax considerations, the required adjustment to the 2016 beginning balance of retained earnings is:
a. $ 0
b. $ 60,000
c. $ 65,000
d. $ 140,000
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 retrospectively restating the financial statements of all prior periods presented
c. neither an accounting change nor a correction of an error
d. a correction of an error
Refer to the information for Shannon Corporation above. Ignoring income taxes, what is the total effect of the errors on 2017 net income?
a. net income understated by $ 1,800
b. net income overstated by $ 5,800
c. net income overstated by $ 11,000
d. net income overstated by $ 14,200
Shannon Corporation began operations on January 1, 2016. Financial statements for the years ended December 31, 2016 and 2017, contained the following errors:

In addition, on December 31, 2017, fully depreciated machinery was sold for $ 10,800 cash, but the sale was not recorded until 2018. There were no other errors during 2016 or 2017, and no corrections have been made for any of the errors.
Refer to the information for Shannon Corporation above. Ignoring income taxes, what is the total effect of the errors on the amount of working capital ( current assets minus current liabilities) at December 31, 2017?
a. working capital overstated by $ 4,200
b. working capital understated by $ 5,800
c. working capital understated by $ 6,000
d. working capital understated by $ 9,800
Shannon Corporation began operations on January 1, 2016. Financial statements for the years ended December 31, 2016 and 2017, contained the following errors:

In addition, on December 31, 2017, fully depreciated machinery was sold for $ 10,800 cash, but the sale was not recorded until 2018. There were no other errors during 2016 or 2017, and no corrections have been made for any of the errors.

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Change in Accounting Change in Accounting a. b. C. d. Principle Yes No Yes No Estimate Yes Yes No No a. b. C. d. Prospective Method No es No Yes Retrospective Adjustment Method No Yes Yes No December 31 2016 2017 Ending inventory $16,000 $15,000 Insurance expense $10,000 $10,000 Prepaid insurance $10,000 understated overstated overstated saed understatad December 31 2016 2017 Ending inventory $16,000 $15,000 Insurance expense $10,000 $10,000 Prepaid insurance $10,000 understated overstated overstated saed understatad