Intermediate Accounting 2 - Chapter 22

Multiple Choice

1. If, at the end of a period, a company using perpetual inventory erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause

a. the ending inventory, cost of goods sold, and retained earnings to be understated.

b. no effect on net income, working capital, and retained earnings.

c. cost of goods sold and net income to be understated.

d. the ending inventory and retained earnings to be understated.

2. Which of the following is not a retrospective-type accounting change?

a. Completed-contract method to the percentage-of-completion method for long-term construction contracts

b. Sum-of-the-years'-digits method to the straight-line method

c. "Full cost" method to another method in the extractive industry

d. LIFO method to the FIFO method for inventory valuation

3. The estimated life of a building that has been depreciated for 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should

a. continue to depreciate the building over the original 50-year life.

b. depreciate the remaining book value over the remaining life of the asset.

c. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

d. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years.

4. Presenting consolidated financial statements this year when statements of individual companies were presented last year is

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

b. not an accounting change.

c. a correction of an error.

d. an accounting change that should be reported prospectively.

5. Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of

a. materiality.

b. conservatism.

c. consistency.

d. objectivity.

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