Section 1: 12 MC Questions worth 30 Points (2.5 points mach) - Indicate the correct answer 1] When a company decides to switch from the double decining balance method to the straight-line method, this change should be handled a a. change in accounting principle. b. change in accounting estimate C. prior period adjustment. d correction of an error 2] Which of the following is accounted for as a change in accounting principle? a. A change in the estimated useful line of plant assets. b. A change from the cash basis of accounting to the accrual basis of accounting. C. A change from expensing immaterial expenditures to deferring and amortizing them as they become material d. A change in inventory valuation from average cost to FIFO. 3] Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. Restatement of prior years' income statements C. Re-computation of current and future years' depreciation d. All of these we required 4 Which of the following disclosures is required for a change from LIFO to FIFO? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. The justification for the change c. Restated prior yes income statements d. All of these are required S] Which type of accounting change should always be accounted for in current and future periods? a. Change in accounting principle b. Change in reporting entity C. Change in accounting estimate d. Correction of an error 6) Which of the following is lare) the proper time periodis) to record the effects of a change in accounting estimate? a. Current period and prospectively b. Current period and retrospectively . Retrospectively only d. Current period only 7 Which of the following is not a retrospective-type accounting change? a. Completed-contract method to the percentage of completion method for long term contracts b. LIFO method to the FIFO method for inventory valuation c. Sum-of-the-years-digits method to the straight-line method d. "Full cost method to another method in the extractive industry 8] Which of the following is an advantage of leasing? a. on-balance-sheet financing b. Less costly financing C. 100% financing at fined rates d. All of these HINK IT A. A ABC ABC AB Normal No Space Herding Aalbcc Heading 2 Problem #2 Lessee Journal Entries: on January 1st 2011, The Mandalay Company leased manufacturing equipment from Western company for a tem Lease payments in the amount of $100,000 are to be made annually on December 31st of each year. Title to the ear passes to Mandalay at the end of the lease term and the lease is not cancellable. Additional information is shown by a) The equipment has an estimated life of 25 years and a $750,000 carrying value on Western's books b) The implicit rate of the lease is 10%. This rate is known to Mandalay c) Both Mandalay and Western use straight line depreciation Requirement A: Record the journal entry on the books of the Lessee to record the teaser on January 1, 2011: Problem #2 Lessee Journal Entries: On January 1st 2011, The Mandalay Company leased manufacturing equipment from Western Company for a term of 20 years. Lease payments in the amount of $100,000 are to be made annually on December 31st of each year. Title to the equipment passes to Mandalay at the end of the lease term and the lease is not cancellable. Additional information is shown below: a) The equipment has an estimated life of 25 years and a $750,000 carrying value on Western's books. b) The implicit rate of the lease is 10%. This rate is known to Mandalay. c) Both Mandalay and Western use straight line depreciation Requirement A: Record the journal entry on the books of the Lessee to record the lease on January 1, 2011: Requirement B: Prepare the following journal entries: 1) The December 31, 2011 journal entries to record the lease payment (including interest) 2) The December 31, 2011 journal entry to record depreciation 13:34 P O . all 70% Now A. A. . . . Normal Albccor Aabbat Ab AaB A Sat Heading Meng2 Paragraph Splet Problem 4: Lessee Accounting: Capital Lease with Guaranteed Residual Western Dairy leases its equipment from Best Finance Company under the following lease terms 1. The lease term is 10 years, non-concelable, and requires equal rental payment of $30.300 dve of the beginning of each year starting January 1, 2012. 2. The equipment has a fair value and cost at the inception of the lease fianuary 1, 2012) of $220,004, on estimated economic life of 10 years, and a residual value (which is guaranteed by Western Dairy of $20,000. 3. The lease contains no renewable options, and the equipment reverts to Best Finance Company upon termination of the lease. 4. Western Dairy's incremental borrowing rate is 9% per year. The impliotrote also 5. Western Dairy denreciates.cautareat that it owns on a straight line bosis Instructions 1) Prepare the journal entries for the lessee at January 1, 2012 to record the lease and IE for first interest payment rod Prepare the journal entries for these at December 31, 2012 to reunione rewiferest p depreciation *** . JOLLI T Normale ADUC ABDLL db Aa d ing Heading 2 Teles A.W.A. . Paragraph Problem #2 Les lournal Font year n On Jary 20, The Mandala Company leased manufacturingument from Westem com o Lease payments in the amount of $100,000 are to be made annually on December list of each year lo passes to Mandalay at the end of these term and the base is not cance. Additional information is sho a) The went has an estimated of years and a $750,000 carryiy eon Westerb es of the implicirate of the least 10. This rate is known to Mandalay Both Mandalay and Western use straight line depreciation w Recordjoumal entry on the books Requirement Prepare the following ournal entre The December 31, 2011 journal entries to record lease a 21 The December 11, 2011 journal entry to record depreciation nd including interest Section 1: 12 MC Questions worth 30 Points (2.5 points mach) - Indicate the correct answer 1] When a company decides to switch from the double decining balance method to the straight-line method, this change should be handled a a. change in accounting principle. b. change in accounting estimate C. prior period adjustment. d correction of an error 2] Which of the following is accounted for as a change in accounting principle? a. A change in the estimated useful line of plant assets. b. A change from the cash basis of accounting to the accrual basis of accounting. C. A change from expensing immaterial expenditures to deferring and amortizing them as they become material d. A change in inventory valuation from average cost to FIFO. 3] Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. Restatement of prior years' income statements C. Re-computation of current and future years' depreciation d. All of these we required 4 Which of the following disclosures is required for a change from LIFO to FIFO? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. The justification for the change c. Restated prior yes income statements d. All of these are required S] Which type of accounting change should always be accounted for in current and future periods? a. Change in accounting principle b. Change in reporting entity C. Change in accounting estimate d. Correction of an error 6) Which of the following is lare) the proper time periodis) to record the effects of a change in accounting estimate? a. Current period and prospectively b. Current period and retrospectively . Retrospectively only d. Current period only 7 Which of the following is not a retrospective-type accounting change? a. Completed-contract method to the percentage of completion method for long term contracts b. LIFO method to the FIFO method for inventory valuation c. Sum-of-the-years-digits method to the straight-line method d. "Full cost method to another method in the extractive industry 8] Which of the following is an advantage of leasing? a. on-balance-sheet financing b. Less costly financing C. 100% financing at fined rates d. All of these HINK IT A. A ABC ABC AB Normal No Space Herding Aalbcc Heading 2 Problem #2 Lessee Journal Entries: on January 1st 2011, The Mandalay Company leased manufacturing equipment from Western company for a tem Lease payments in the amount of $100,000 are to be made annually on December 31st of each year. Title to the ear passes to Mandalay at the end of the lease term and the lease is not cancellable. Additional information is shown by a) The equipment has an estimated life of 25 years and a $750,000 carrying value on Western's books b) The implicit rate of the lease is 10%. This rate is known to Mandalay c) Both Mandalay and Western use straight line depreciation Requirement A: Record the journal entry on the books of the Lessee to record the teaser on January 1, 2011: Problem #2 Lessee Journal Entries: On January 1st 2011, The Mandalay Company leased manufacturing equipment from Western Company for a term of 20 years. Lease payments in the amount of $100,000 are to be made annually on December 31st of each year. Title to the equipment passes to Mandalay at the end of the lease term and the lease is not cancellable. Additional information is shown below: a) The equipment has an estimated life of 25 years and a $750,000 carrying value on Western's books. b) The implicit rate of the lease is 10%. This rate is known to Mandalay. c) Both Mandalay and Western use straight line depreciation Requirement A: Record the journal entry on the books of the Lessee to record the lease on January 1, 2011: Requirement B: Prepare the following journal entries: 1) The December 31, 2011 journal entries to record the lease payment (including interest) 2) The December 31, 2011 journal entry to record depreciation 13:34 P O . all 70% Now A. A. . . . Normal Albccor Aabbat Ab AaB A Sat Heading Meng2 Paragraph Splet Problem 4: Lessee Accounting: Capital Lease with Guaranteed Residual Western Dairy leases its equipment from Best Finance Company under the following lease terms 1. The lease term is 10 years, non-concelable, and requires equal rental payment of $30.300 dve of the beginning of each year starting January 1, 2012. 2. The equipment has a fair value and cost at the inception of the lease fianuary 1, 2012) of $220,004, on estimated economic life of 10 years, and a residual value (which is guaranteed by Western Dairy of $20,000. 3. The lease contains no renewable options, and the equipment reverts to Best Finance Company upon termination of the lease. 4. Western Dairy's incremental borrowing rate is 9% per year. The impliotrote also 5. Western Dairy denreciates.cautareat that it owns on a straight line bosis Instructions 1) Prepare the journal entries for the lessee at January 1, 2012 to record the lease and IE for first interest payment rod Prepare the journal entries for these at December 31, 2012 to reunione rewiferest p depreciation *** . JOLLI T Normale ADUC ABDLL db Aa d ing Heading 2 Teles A.W.A. . Paragraph Problem #2 Les lournal Font year n On Jary 20, The Mandala Company leased manufacturingument from Westem com o Lease payments in the amount of $100,000 are to be made annually on December list of each year lo passes to Mandalay at the end of these term and the base is not cance. Additional information is sho a) The went has an estimated of years and a $750,000 carryiy eon Westerb es of the implicirate of the least 10. This rate is known to Mandalay Both Mandalay and Western use straight line depreciation w Recordjoumal entry on the books Requirement Prepare the following ournal entre The December 31, 2011 journal entries to record lease a 21 The December 11, 2011 journal entry to record depreciation nd including interest